A Full Opening Act … to Keep Traders’ Blood Flowing

Key News

  • Trichet Exit Faces `Greek Roadblock’ Threat to One-Size-Fits-All Approach (Bloomberg)
  • China misread by bulls and bears (Michael Pettis, writing in the Financial Times)

Quotable

“After a 0.5% point contribution to Q3 GDP the Q4 Eurozone GDP report showed that inventories made a zero contribution. There was also a zero contribution from household consumption as well as government consumption expenditure with investment contributing a negative 0.2% points. The 0.1% growth for Q4 was largely led by exports which contributed 0.6% points but still less than the 1.1% contribution made during Q3 while imports made a less negative contribution of -0.3% percentage points compared to -1.0% in Q4.

Overall the data does little to inspire confidence that the "recovery" is self-sustainable and is reason enough to expect that the ECB will be very cautious in signaling that monetary tightening (refi rate hike) is the next natural step from a normalization of money markets. While we continue to see the ECB on hold this year there is the risk that they could be on hold until H2 2011. We will wait to see how the normalization goes but at this stage we are biased toward the lower for longer view on ECB rates.”

                             Divyang Shah, Reuters

FX Trading – A Full Opening Act … to Keep Traders’ Blood Flowing

February US Nonfarm payrolls are reported tomorrow. Typically it’s a snooze-fest in the markets for the 24 hours or so leading up to that report.

But the week’s been full of data points to give traders reason to stay awake.

The Reserve Bank of Australian and the Bank of Canada both announced monetary policy; RBA hiked 25 basis points, while the BOC sat on its hands.

ADP, the precursor to Nonfarm Payrolls, was in line with expectations of 20k job cuts.

The Fed’s Beige Book was released, noting modest growth, tight credit conditions, slight improvement in consumer spending, weak demand for loans, poor hiring expectations and very little inflation.

By raising the borrowing limit in a special account, Japan gave itself room to intervene in the forex market should they become hurt by a strengthening yen. It’s taken to be a mere gesture at this point … rather than an imminent threat of acting to stem yen gains.

Malaysia surprised everyone; their central bank raised interest rates by 25 basis points earlier today. They’re the first Asian central bank to make such a move. It’s been noted that inflation is not a problem … is this a sign that recovery is here to stay?

And the Bank of England and European Central Bank are due up later this morning …

Traders bit down on chances that the BOE will continue its quantitative easing measures. That, and concerns over the political situation and lingering debt problems, dogged the British pound earlier in the week. The BOE will almost certainly stay on hold with rates. Any negative reaction in the pound will depend upon the aggressiveness of the quantitative easing rhetoric in the BOE’s statement today.

Technically, GBPUSD seems due to bounce a bit higher after its plunge that began in mid-January:

The European Central Bank probably won’t be doing much today either. For one, obvious concern swirling around Greece and its Eurozone “buddies.” For two, its growth numbers continue to mostly lag those of most the rest of the world. As Jack has cited recently throughout our publications, this growth dynamic will impact interest rate expectations to the advantage of the Fed rather than the ECB, to the dollar rather than the euro.

But that said, we may get a short reprieve in the Greece-austerity-measures fiasco with the focus turning to US jobs. Plus, the euro too looks as though it’s in need of a bit more bounce, technically, especially as consensus has so quickly built against the euro and so quickly pushed it lower:

So, expect the kneejerk price spikes in the few minutes following the central banks’ announcements today. Perhaps will see some upside bias for EURUSD and GBPUSD in the wake of the reports; and as usual, don’t expect too much excitement until Nonfarm Payrolls tomorrow.