Yesterday we had inflation figures
out of the UK, and they showed a decline. The core Consumer Price Index (CPI) year-on-year
fell to 1.2%, from 1.5% previously. Even residential property showed a significant
drop from what had been a strong surge of growth.
All this should have been a negative
for the Pound but the market seems to have taken the view that, as average
prices are falling across the board globally, the result could have been worse.
“In the valley of the blind, the one-eyed man in king”, participants seemed to
say, and bid Cable (GBPUSD) up accordingly. They could also be acknowledging, at last, that lower energy prices, which are the main drivers of the CPI figures, are a net positive for the British economy.
In fact, GBPUSD has been trying very
hard for some time now to carve out a bottom. After yesterday, we are looking
at a bullish engulfing candle on the daily chart, the possibility of a series
of higher highs and higher lows (which define an uptrend) and, even, a nascent
inverted head and shoulders pattern, if one looks hard enough (see chart above).
But the pair has done all of that before, without anything in the way of
follow-through. Today’s FOMC statement and press conference has
the strong potential to influence the way this particular story plays out.
All of the above, of course, must be
considered in the context of possible end-of-year squaring-off of accounts by
the larger Forex players.
Today
is Fed day
Today is the last significant day for
market events before the Christmas and New Year holiday. There will be UK
employment statistics, the release of the Bank of England minutes from its last
monetary policy meeting, and inflation data from the Eurozone. But the biggie
is the US FOMC interest rate decision and monetary policy statement, which will
be released late in the day in GMT terms, at 7:00 PM. On this occasion the
Chair of the FOMC, Janet Yellen, will give a press conference afterwards.
The words in the statement the
market is looking out to hear, or not hear, are “considerable period”. This formula has
been used to signal that the market need not worry about interest rate rises
until after about six months have passed from the time the phrase is
discontinued. If it fails to appear today, it will give the clearest signal
yet that core rates are on track to begin to rise in the US around the middle
of 2015. This prospect has already been priced into the market for those pairs
that involve the US dollar, at least to some extent. It is also responsible,
along with a number of other factors, for the Carry Trade unwinding that has
reduced the value of many commodity currencies, e.g. the Aussie dollar, the
slump in a number of emerging market currencies and the profound problems that
are besetting the Russian Rouble.
No comments:
Post a Comment