Source: Daily FX
A very quiet meandering night in the currency markets with EURUSD continuing to consolidate around the 1.5500 level in a now very familiar fashion. With economic calendar for the day virtually empty, order flow and a smattering of central bank commentary were the primary factors driving trade.
ECB Member Jorgen Stark noted that the 3.7% inflation level was 'may be unacceptably high' stoking hopes of euro bulls that a rate hike may be coming in July. However, as we noted yesterday the inflationary numbers from all the G-11 nations are elevated strictly because of oil prices with core readings considerably more muted. If oil prices recede from their Olympian highs much of the impetus for the rate hikes may disappear.
In the meantime the ECB will meet a tremendous amount of institutional opposition from the EZ business sector which is already feeling the negative effects of tighter credit. Today's weak construction PMI numbers which showed a decline of -2.4% on a year over year basis is just the latest data point to suggest that growth in the 15 member union is decelerating rapidly.
In UK the release of the BoE minutes provided little surprise with members voting 8-1 to keep rates steady as the lone dove David Blanchflower opted for a 25bp cut. Cable found temporary strength in the following passage 'For some members, news had been sufficient to consider whether an immediate rise in Bank Rate was warranted. If there were a serious threat to medium-term inflation expectations then a pre-emptive rise in rates would be appropriate. Delay would only increase the eventual costs of bringing inflation back to target, ' but the rally soon fizzled as MPC members noted that there were also arguments against the hike. In short, the market concluded that the BoE will remain stationary for the time being with danger to the downside still the more likely outcome if economic conditions in UK deteriorated further.
In North America today, the data calendar only contains MBA mortgage approvals, leaving currencies at the mercy of macro factors such as stocks and oil and unless there is tremendous volatility in those markets, the listless trading of Asia and Europe should continue into the US open.
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Thursday, June 19, 2008
Euro Can't Hold 1.5500 As Currencies Look For Direction
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