Friday, April 15, 2011

Latest Developments in Euro-zone, China Strong Growth, Bank Of England Sentance Talks Up Inflation

This week's trading has been largely characterized by sideways trading
and consolidation after the very strong moves we had the past few

While there were some fresh developments in regards to sovereign debt,
the EUR was not pressured so much as it was unable to move higher,
capped at its recent resistance level near 1.45.

*Here are the main stories affecting the EUR:*

1. In the Euro-zone we saw Greece suffer yet another downgrade, as
Moody's lowered the rating on the country's sovereign debt by two
notches, to Baa3 - one level away from junk status. The concern here
is that the country's fiscal situation will be negatively impacted by
higher borrowing costs from the ECB. For the most part, the markets
bushed off this downgrade.

2. We also seem to have moved beyond the fear of the need for Greek
debt restructuring after several EU and IMF officials came out
forcefully to say that there would be no restructuring. As traders
digested and then discarded that latest bit of the sovereign debt
crisis we saw the EUR/USD swing from 1.45 yesterday, down to 1.4370,
before climbing back up to 1.45 to start today's global session.

3. In fundamental releases we saw the final version for March CPI from
the Euro-zone. Here we saw the annual rate rise to 2.7%, higher than
the flash or preliminary estimate. The news gave the EUR a little bit
of a boost, but the ECB has already moved to raise interest rates, and
at this point today's data likely does not mean that the ECB will be
adjusting its timetable for further rate hikes.

*China's Strong Growth Continued in the 1st Quarter*

In the Asian session, we continue to see the Chinese economy posting
very strong data, showing that its economy continues to roar ahead
despite attempts by Chinese central bank officials to cool the economy
via higher bank reserve requirements and higher lending costs though
higher interest rates.

The economy grew 9.7% in the 1st quarter, stronger than expected,
while consumer prices rose to 5.4% for March, the stronger inflation
since 2008. The news, while a plus for the global economy's pace of
recovery, means that China's authorities will have to continue their
campaign of rather aggressive monetary tightening. Until we start to
see the effect of this policy show up in the data, then countries
dependent on Chinese demand should not be too affected.

*BOE Sentance Talks Up Inflation*

Finally, we also had some hawkish comments from BOE member Andrew
Sentance. After the softer UK CPI data this week, traders scaled back
expectations for an interest rate increase in the next BOE meeting.
Sentance - one of the most hawkish members of the BOE - reiterated
what we had heard from the BOP about a month ago, that annual
inflation can breach the 5% target in the short term.

The GBP was a bit stronger against both the USD and EUR in overnight

Source: ActionForex.Com

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