To our, as well as the market's, disappointment, the ECB only reduced its policy rates by 25 bps to 1.25%, less than consensus forecast of a 50 bps cut. The deposit rate was also 25 bps lower, maintaining the corridor at 100 bps. At the same time, no non-standard measures were announced. We believe this was because the policymakers remained indecisive on what additional measures to be implemented and many of them still felt reluctant to put forward QE.
Although the ECB has slashed its main refinancing rate 300 bps to the current level at 1.25%, the lowest since 1999, since October 2008, it's monetary easing is still lagging its major counterparts, including the Fed, BOE, SNB and BOJ, whose interest rates have reached almost zero.
The ECB President Trichet stated that another cut is possible in May when it may also decide on any new non-standard measures. However, he did not give further details on the options, except for ruling out using exchange rate at an unconventional tool.
Concerning economic outlook, Trichet mentioned at the press conference that economic activities has weakened and is likely to remain very subdued for the rest of the year in the Eurozone. However, gradual recovery is expected in 2010. Despite further easing in inflation, the ECB's ‘inflation expectations over the medium to longer term, at levels below but close to 2%, remain firmly anchored in line'.
We believe at the meeting next month, the central bank will reduce interest rate by another 25 bps, thereby making the policy rate to 1% and narrowing the corridor to 75 bps (as it seems unlikely that the central bank will allow the deposit rate to reach 0%). Moreover, some non-standard measures will be announced and we expect it will be extension of the liquidity provision to banks to 12 months from the current 6 month as well as purchase of private securities. Although buying of sovereign securities is an attractive option, it's not likely for the ECB to do it at the moment.
Mid-Day Report: Dollar Steady after NFP and ISM Services, Sterling Lifted by PMI Services
Mid-Day Report: Dollar Steady after NFP and ISM Services, Sterling Lifted by PMI Services
Dollar remains steadily in range against most major currencies in early US session after the release of closely watched employment and services report. Non farm payroll showed that job market in US cut another -663k jobs in March, close to expectation of -654k. Unemployment jumped to 25 years high of 8.5%, meeting consensus expectations. ISM Services cam in worse than expected, dropping form 41.6 to 40.8 in March, comparing with consensus of 42.0. There is little reaction to the data as markets are still digesting recent moves. The greenback and yen remain generally soft.
On the other hand, Sterling is lifted by stronger than expected services data today. PMI Service rose much more than expected from 43.2 to 45.5 in March comparing to expectation of 43.5. UK Halifax house price dropped -1.9% mom in March, slightly deeper than expectation of -1.8%. Sterling is noticeably strong against Euro and EUR/GBP. As mentioned before, recent development argues that EUR/GBP's rebound from 0.8635 has already completed at 0.9494 and further decline could be seen to retest this low first. In other words, Sterling is expected to outperform Euro in near term.
Other economic data released today saw EUrozone PMI services revised higher to 40.9 in March. Swiss CPI dropped -0.3% mom, -0.4% yoy in March, deeper than expectation of 0% mom, -0.1% yoy. Germany import price dropped -0.1% mom, -6.4% yoy in Feb, above expectation of -0.3% mom, -7.8% yoy.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.4529; (P) 1.4638; (R1) 1.4831; More
GBP/USD's rally is still in progress and reaches as high as 1.4844 in early US session. At this point, intraday bias remains on the upside as long as 1.4647 minor support holds. Whole rise from 1.3654 is treated as the third leg of consolidation from 1.3503 and is now expected to extend further to 1.4984 resistance, and probably further to 100% projection of 1.3503 to 1.4984 from 1.3654 at 1.5135. On the downside, below 1.4647 will turn intraday outlook neutral and bring pull back. But short term outlook will remain bullish as long as pull back is contained above 1.4109 support.
In the bigger picture, a medium term bottom is in place at 1.3503 after GBP/USD completed the five wave sequence from 2.0158 (1.7445, 1.8668, 1.4557, 1.5722, 1.3503). Consolidation from 1.3503 is still in progress with rise from 1.3654 as the third leg. It's still uncertain how such consolidation will develop into but in any case, upside should be limited by resistance zone of 1.5722 and 38.2% retracement of 2.0158 to 1.3503 at 1.6045. On the downside, below 1.4109 will revive the triangle scenario and bring more choppy consolidation between 1.3503 and 1.4984 before resuming the long term down trend.
Dollar remains steadily in range against most major currencies in early US session after the release of closely watched employment and services report. Non farm payroll showed that job market in US cut another -663k jobs in March, close to expectation of -654k. Unemployment jumped to 25 years high of 8.5%, meeting consensus expectations. ISM Services cam in worse than expected, dropping form 41.6 to 40.8 in March, comparing with consensus of 42.0. There is little reaction to the data as markets are still digesting recent moves. The greenback and yen remain generally soft.
On the other hand, Sterling is lifted by stronger than expected services data today. PMI Service rose much more than expected from 43.2 to 45.5 in March comparing to expectation of 43.5. UK Halifax house price dropped -1.9% mom in March, slightly deeper than expectation of -1.8%. Sterling is noticeably strong against Euro and EUR/GBP. As mentioned before, recent development argues that EUR/GBP's rebound from 0.8635 has already completed at 0.9494 and further decline could be seen to retest this low first. In other words, Sterling is expected to outperform Euro in near term.
Other economic data released today saw EUrozone PMI services revised higher to 40.9 in March. Swiss CPI dropped -0.3% mom, -0.4% yoy in March, deeper than expectation of 0% mom, -0.1% yoy. Germany import price dropped -0.1% mom, -6.4% yoy in Feb, above expectation of -0.3% mom, -7.8% yoy.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.4529; (P) 1.4638; (R1) 1.4831; More
GBP/USD's rally is still in progress and reaches as high as 1.4844 in early US session. At this point, intraday bias remains on the upside as long as 1.4647 minor support holds. Whole rise from 1.3654 is treated as the third leg of consolidation from 1.3503 and is now expected to extend further to 1.4984 resistance, and probably further to 100% projection of 1.3503 to 1.4984 from 1.3654 at 1.5135. On the downside, below 1.4647 will turn intraday outlook neutral and bring pull back. But short term outlook will remain bullish as long as pull back is contained above 1.4109 support.
In the bigger picture, a medium term bottom is in place at 1.3503 after GBP/USD completed the five wave sequence from 2.0158 (1.7445, 1.8668, 1.4557, 1.5722, 1.3503). Consolidation from 1.3503 is still in progress with rise from 1.3654 as the third leg. It's still uncertain how such consolidation will develop into but in any case, upside should be limited by resistance zone of 1.5722 and 38.2% retracement of 2.0158 to 1.3503 at 1.6045. On the downside, below 1.4109 will revive the triangle scenario and bring more choppy consolidation between 1.3503 and 1.4984 before resuming the long term down trend.
EUR/USD Weekly Outlook
After being supported at 1.3112, EUR/USD rebounded strongly to 1.3516 last week before turning sideway. With 1.2928 support as well as 55 days EMA intact, rise from 1.2456 should still be in progress. Initial bias remains on the upside this week as long as 1.3322 minor support holds. Further rise should be seen towards 1.3737 resistance first and break will confirm that rise from 1.2456 has resumed for 1.3822 (61.8% retracement of 1.4719 to 1.2456 at 1.3855). On the downside, though, below 1.3322 will be the first signal that rise from 1.3112 has completed. Further break of this support will put focus back to 1.2928.
In the bigger picture, recent development suggests that EUR/USD is still bounded in sideway consolidation that started at 1.2329, with rise from 1.2456 as the third leg. At this moment, there is no sign that such rise from 1.2456 has completed and we're still slightly favoring the case for it to extend to 1.4719 or above. But even in such case, upside should be limited by 1.4867 resistance and bring down trend resumption. On the downside, below 1.2928 support will indicate that rise from 1.2456 has completed earlier than we thought and will put focus back to 1.2329/2456 support zone.
In the long term picture, outlook is rather unclear for the moment. While 1.6038 is no doubt an important long term top, there is no clear answer on whether subsequent price actions from 1.6038 are unfolding as sideway consolidation, deep correction, or a reversal in trend. Nevertheless, note that another fall is still in favor as long as 1.4867 resistance holds and in such case, EUR/USD should at least have a test of 1.1639 long term support.
In the bigger picture, recent development suggests that EUR/USD is still bounded in sideway consolidation that started at 1.2329, with rise from 1.2456 as the third leg. At this moment, there is no sign that such rise from 1.2456 has completed and we're still slightly favoring the case for it to extend to 1.4719 or above. But even in such case, upside should be limited by 1.4867 resistance and bring down trend resumption. On the downside, below 1.2928 support will indicate that rise from 1.2456 has completed earlier than we thought and will put focus back to 1.2329/2456 support zone.
In the long term picture, outlook is rather unclear for the moment. While 1.6038 is no doubt an important long term top, there is no clear answer on whether subsequent price actions from 1.6038 are unfolding as sideway consolidation, deep correction, or a reversal in trend. Nevertheless, note that another fall is still in favor as long as 1.4867 resistance holds and in such case, EUR/USD should at least have a test of 1.1639 long term support.
Forex News and Rumors - Afternoon Update
Falling Retail Sales Push Down Pound
The British pound fell after February UK retail sales in February fell by 1.9 percent from January. One analyst in London described the outlook of the pound as “fragile”. More
Geithner Plans to Increase Authority Over Banking System
US Treasury Secretary Timothy Geithner told a House Committee today that the government needs more authority over the banking system to prevent the type of risk-taking that led to the current financial crisis. The following points are under consideration:
Establishing a single entity responsible for stability among major institutions
Enforcing more conservative capital requirements for financial institutions
Forcing investment companies of a certain size to register with the Securities and Exchange Commission (SEC), the US financial regulator
Establishing a framework for derivative markets
Strengthening requirements for money market funds
More
PM Calls for Creation of New Fund
While speaking at a summit one week ahead of the G20 Meeting, British Prime Minister Gordon Brown called for the creation of a $100bn (£69bn) global fund to boost global spending in a bid to protect emerging market economies. More
Oil Climbs to Four-Month High
Crude oil prices jumped nearly 3 percent today as continued stock market gains help soothe investor’s fears. Contracts for May delivery rose $1.52 to $54.29 a barrel in New York. More
The British pound fell after February UK retail sales in February fell by 1.9 percent from January. One analyst in London described the outlook of the pound as “fragile”. More
Geithner Plans to Increase Authority Over Banking System
US Treasury Secretary Timothy Geithner told a House Committee today that the government needs more authority over the banking system to prevent the type of risk-taking that led to the current financial crisis. The following points are under consideration:
Establishing a single entity responsible for stability among major institutions
Enforcing more conservative capital requirements for financial institutions
Forcing investment companies of a certain size to register with the Securities and Exchange Commission (SEC), the US financial regulator
Establishing a framework for derivative markets
Strengthening requirements for money market funds
More
PM Calls for Creation of New Fund
While speaking at a summit one week ahead of the G20 Meeting, British Prime Minister Gordon Brown called for the creation of a $100bn (£69bn) global fund to boost global spending in a bid to protect emerging market economies. More
Oil Climbs to Four-Month High
Crude oil prices jumped nearly 3 percent today as continued stock market gains help soothe investor’s fears. Contracts for May delivery rose $1.52 to $54.29 a barrel in New York. More
FUNDAMENTALS — THIS WEEKS ECONOMIC RELEASES
Most Recent Economic Releases Forecast Previous
USD Geithner Speaks at IDB's Annual Meeting in Medellin, Colombia
EUR Italian Bloomberg Retail PMI (MAR) 38.2
EUR German Bloomberg Retail PMI (MAR) 45.4
EUR French Bloomberg Retail PMI (MAR) 43.5 42.6
EUR Euro-Zone Bloomberg Retail PMI (MAR) 42.3
EUR Euro-Zone Business Climate Indicator (MAR) -3.48 -3.40 (R+)
EUR Euro-Zone Consumer Confidence (MAR) -34 -33
EUR Euro-Zone Economic Confidence (MAR) 65.4 65.3 (R-)
USD Geithner Speaks at IDB's Annual Meeting in Medellin, Colombia
EUR Italian Bloomberg Retail PMI (MAR) 38.2
EUR German Bloomberg Retail PMI (MAR) 45.4
EUR French Bloomberg Retail PMI (MAR) 43.5 42.6
EUR Euro-Zone Bloomberg Retail PMI (MAR) 42.3
EUR Euro-Zone Business Climate Indicator (MAR) -3.48 -3.40 (R+)
EUR Euro-Zone Consumer Confidence (MAR) -34 -33
EUR Euro-Zone Economic Confidence (MAR) 65.4 65.3 (R-)
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