Monday, November 24, 2014

Single currency could be volatile on US GDP report today | Funny business in Shanghai?

Based on the recent confirmation by the ECB that it is considering the purchase of sovereign bonds as an addition to its other easing measures, the bias in the Euro is currently to the downside. As far as the EURUSD pair is concerned, however, the revised GDP figures for the USA, due out later today, could have a bearing on its continuation.

There is a sense in the Forex market that these figures will be disappointing. If so, they will provide additional force to the FOMC instinct to prolong, for some time, the rise in core interest rates that are under consideration. This could cause the Single currency to reverse its recent decline, at least temporarily.

Funny business in Shanghai?

The surprise announcement on Friday, by the People’s Bank of China, that core interest rates were to be reduced, has led the Wall Street Journal to flag what it sees as unusual activity in the equities market in Shanghai. According to the WSJ report, this seems to indicate that there was insider trading at work.

There was a sudden surge in Chinese stocks in general but in property developers in particular, hours before the Chinese central bank made its announcement. And property developers, who are the largest non-state borrowers in China, are the ones with the most to gain from interest rate reductions.

From our own point of view in Forex trading, the pattern of activity seems to have been more conventional. As the chart above shows, the Aussie dollar, which can be expected to be a beneficiary of any increased commercial activity in The People’s Republic, spurted upwards some two minutes after the time of the announcement. This is still a very fast reaction and we have to wonder at the mechanism that would allow it, but at least it was after the event. One has to marvel at the kind of trading algorithms that are in operation at the market movers which allow such a fast response.

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