Monday, July 20, 2015

Forex: Consolidation pattern example | Draghi calls for greater integration in the Euro zone – in London

This commentary is from the archive, as your commentator is on holiday. It was first published in July 2014

Last October we drew attention to a well-formed consolidation pattern in the USDJPY pair. Known as a pennant in Technical Analysis terms, this is traditionally a bullish formation. In other words when it plays out it is expected to lead to a rise in the rate, and on that occasion it did not disappoint.

Right now we are experiencing another consolidation phase. This time the configuration is more in the nature of a descending triangle which, according to the TA aficionados, is not at all as bullish as the pennant.

At bottom it will be necessary to also take cognisance of the fundamentals when considering the Yen. In the recent past it has been subject to so-called Abenomics, or the strong easing policies which were put in place on his assuming office by the Prime Minister, Shinzō_Abe. 

There are distinct signs that this phase is now waning, with some economic commentators in Japan itself going on record to the effect that the measures are not working.
Caution in terms of buying Dollar – Yen is indicated.

Draghi calls for greater integration in the Euro zone – in London

In a speech in London, of all places, yesterday, Mario Draghi made the case, on behalf of the ECB, for significantly greater integration in the economies of the countries that comprise the Eurozone. He made the point that if this were to happen, it would be easier for each member state, for example, to dispose of their sovereign bonds than is sometimes the case at present.

According to the Dow Jones Newswire, Mr. Draghi noted that while the World Economic Forum ranks euro-zone member Finland third in the world in terms of competitiveness, Greece ranks No. 91. Similarly, he noted that the World Bank ranked Ireland 15th in the world for ease of doing business, while it ranks Malta at No. 103.

‘No firm or individual should be penalized by its country of residence,' he said. 'The persistence of such differences creates the risk of permanent imbalances. With this in mind, I believe that structural reforms in each country are enough of a common interest to justify that they are made subject to discipline at the community level.”

He went so far as to say that the absence of such structural reform has the potential to threaten the very existence of the Single Currency.

Also according to Dow Jones, earlier in the day, ECB Executive Board member Benoît Curé explained the proposals in terms of  'a convergence of economic policies and structures' that would be 'embedded in a binding European effort, based on benchmarks to be met by all euro-area member states.'

Choosing London as the launch pad for such a proposal is interesting in itself. Britain, of course, is not in the Eurozone, even if it is a member of the European Union (albeit not a particularly enthusiastic one). The Brits are dead against any kind of measures that would smack of leading to a federal political structure within the EU and this proposal, while ostensibly about economic and monetary matters, could not be implemented without ever closer political integration as well.

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