BostonFXtrader
Junior member
- Messages
- 18
- Likes
- 0
GLOBAL FX STRATEGY THOUGHTS
The dictionary definition of a recession is a decline in a country’s real GDP (Gross Domestic Product) for two or more successive quarters of a year. The NBER (National Bureau of Economic Research) ultimately decides whether the economy has fallen into a recession and their definition is a “significant decline in economic activity spread across the economy, lasting more than a few months”. Until then, we all can speculate. The data releases from the U.S. are certainly shaping up for a weak economy, but not a recession. The commodity market is still flying high without any signs of slowing, creating inflation surging past every country’s threshold. This current market is starting to feel like stagflation all over again with low to no economic growth and high inflation.
So far ECB’s President, Jean-Claude Trichet, has been the only central bank head to draw a line in the sand against inflation and probably will not fall behind the yield curve. But, the Eurozone is not impervious to the global slowdown with the German ZEW survey, an institutional investor survey, coming out yesterday worse than expected at –51.7 (expected –41.4, precious –41.4). The ECB’s economic growth is not driving interest rates higher, rather the ECB monetary policy is closely focused on containing inflation expectations. We believe that there will be one or two 25 basis point hikes from the ECB in the coming meetings. That should be sufficient enough to contain the inflation for the next 18-24 months. The EUR/USD should be trading at the top of the range in the near term, around 1.5650 to 1.5800, and maybe even a breach of 1.6000 again. This should be the last hooray for the EUR/USD for the coming year before a potential fall towards 1.4800 –1.5000 level.
The US Fed has succumb to the economic pinch and slashed interest rates due to the credit crunch and the crumbling housing market. The US has had a dramatic slowdown in most manufacturing areas and in the job markets. The economic woes are not going to get better overnight . The US’s Fed. Chairman Ben Bernanke has dropped interest rates from 4.50% on October 31, 2007 to 2.00% and seems to be jawboning more and more about rising inflation in the US.
On Tuesday, June 17th, Bank of England’s Governor Meryn King wrote the inflation letter to the Chancellor of the Exchequer Alistar Darling explaining why inflation is rising so far above England’s 2.0% inflation target. King wrote that the inflation that England is feeling should be temporary in nature though it could rise sharply above 4% in the second half of the year. There is considerable speculation about this, but it is not out of question.
We believe that there is a good chance the ECB will hike their interest rates on July 3rd to 4.25%. We are currently long the EUR/USD until the last push up after the hike. This could be the end days for the EUR/USD climb because we foresee the that the ECB will be satisfied with their economic and inflation situations, while the US at 2.00% interest rate has only one place to go, and that’s up. If Ben Bernanke fights inflation the way he fought the US’s economic slowdown and credit crunch, the US’s Fed Fund Rate should be much closer to the ECB’s rate by mid to end 2009.
Risk Warning:Trading off-exchange currencies on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade the foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. This posting is for information purposes only. The data and analysis herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors must obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this posting. We try to ensure that all of the information provided in this posting is kept up-to-date and accurate but we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Back Bay FX Services, LLC (BBFX). The content and opinions herein is provided in good faith and believed to be accurate; however, there are no explicit or implicit warranties of accuracy or timeliness made by the author. The reader agrees not to hold the author liable for decisions that are based on information from this newsletter. The author recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from multiple independent sources. This posting contains confidential information and is intended solely for FXAW members.
The dictionary definition of a recession is a decline in a country’s real GDP (Gross Domestic Product) for two or more successive quarters of a year. The NBER (National Bureau of Economic Research) ultimately decides whether the economy has fallen into a recession and their definition is a “significant decline in economic activity spread across the economy, lasting more than a few months”. Until then, we all can speculate. The data releases from the U.S. are certainly shaping up for a weak economy, but not a recession. The commodity market is still flying high without any signs of slowing, creating inflation surging past every country’s threshold. This current market is starting to feel like stagflation all over again with low to no economic growth and high inflation.
So far ECB’s President, Jean-Claude Trichet, has been the only central bank head to draw a line in the sand against inflation and probably will not fall behind the yield curve. But, the Eurozone is not impervious to the global slowdown with the German ZEW survey, an institutional investor survey, coming out yesterday worse than expected at –51.7 (expected –41.4, precious –41.4). The ECB’s economic growth is not driving interest rates higher, rather the ECB monetary policy is closely focused on containing inflation expectations. We believe that there will be one or two 25 basis point hikes from the ECB in the coming meetings. That should be sufficient enough to contain the inflation for the next 18-24 months. The EUR/USD should be trading at the top of the range in the near term, around 1.5650 to 1.5800, and maybe even a breach of 1.6000 again. This should be the last hooray for the EUR/USD for the coming year before a potential fall towards 1.4800 –1.5000 level.
The US Fed has succumb to the economic pinch and slashed interest rates due to the credit crunch and the crumbling housing market. The US has had a dramatic slowdown in most manufacturing areas and in the job markets. The economic woes are not going to get better overnight . The US’s Fed. Chairman Ben Bernanke has dropped interest rates from 4.50% on October 31, 2007 to 2.00% and seems to be jawboning more and more about rising inflation in the US.
On Tuesday, June 17th, Bank of England’s Governor Meryn King wrote the inflation letter to the Chancellor of the Exchequer Alistar Darling explaining why inflation is rising so far above England’s 2.0% inflation target. King wrote that the inflation that England is feeling should be temporary in nature though it could rise sharply above 4% in the second half of the year. There is considerable speculation about this, but it is not out of question.
We believe that there is a good chance the ECB will hike their interest rates on July 3rd to 4.25%. We are currently long the EUR/USD until the last push up after the hike. This could be the end days for the EUR/USD climb because we foresee the that the ECB will be satisfied with their economic and inflation situations, while the US at 2.00% interest rate has only one place to go, and that’s up. If Ben Bernanke fights inflation the way he fought the US’s economic slowdown and credit crunch, the US’s Fed Fund Rate should be much closer to the ECB’s rate by mid to end 2009.
Risk Warning:Trading off-exchange currencies on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade the foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. This posting is for information purposes only. The data and analysis herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors must obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this posting. We try to ensure that all of the information provided in this posting is kept up-to-date and accurate but we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Back Bay FX Services, LLC (BBFX). The content and opinions herein is provided in good faith and believed to be accurate; however, there are no explicit or implicit warranties of accuracy or timeliness made by the author. The reader agrees not to hold the author liable for decisions that are based on information from this newsletter. The author recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from multiple independent sources. This posting contains confidential information and is intended solely for FXAW members.
