It seems that market participants switch off their brain when it comes to raising interest rates by the Fed. The recently released U.S. economic showed almost no signs of sufficient recovery of the U.S. economy. A slight rise in U.S. core consumer price inflation was enough to support the U.S. dollar, although this week released U.S. economic data was mixed. It is possible that the movement was driven by profit-taking before the long weekend.
Despite comments by the Fed officials that the central bank may raise its interest rate hike in every monetary policy meeting, it is unlikely that it will happen in June. The most U.S. economic data remained soft in April. The U.S. retail sales were flat in April, missing expectations for a 0.2% increase, after a 1.1% gain in March. The U.S. industrial production dropped 0.3% in April, missing expectations for a 0.1% increase, after a 0.3% decline in March. Capacity utilisation rate fell to 78.2% in April from 78.6% in March.
The parliamentary election in the U.K. is over. The Conservatives won the UK's parliamentary election. The Conservative Party with the current Premier Minister David Cameron won 330 seats. It is enough to have a majority in the parliament. The win of the Conservatives could mean a stability for the pound. But the prospects of a referendum on Britain's membership in the European Union (Cameron's election campaign promise) could weigh on the pound.
The euro started to rise against the U.S. dollar yesterday morning. The euro appreciated more than 280 pips. The significant increase was driven by different factors. Investors hope that Greece and its creditors will sign a new agreement. Tsipras reshuffled his team negotiating with European and IMF creditors on Monday. Deputy Foreign Minister, Euclid Tsakalotos, was appointed co-coordinator of the team. This news was considered positive.
The Greek debt talks have become something of a never-ending story. Greece and its creditors (the European Union and the International Monetary Fund) are unable to reach a deal on the economic reforms needed to unlock a new tranche of loans (€7.2 billion). Debt talks took several months but a deal is not signed yet. The Greek government made some concessions but it is not enough.
It's a little bit "strange" picture. The U.S. dollar rises against the euro despite the mixed U.S. economic data. The U.S. economy added only 126,000 jobs in March, after a rise of 264,000 jobs in February. The consumer inflation in the U.S. is still below the Fed's 2% target, and wages growth is still low.
The resistance-zone between the intraday-high set after the latest FED policy meeting (that was sold off almost as fast as the level was reached) and the last significant low at USD1.1097 held and the euro reversed after two failed intra-day attempts. We have seen a pullback to USD1.0712 and the single currency is re-approaching the level again - currently trading at USD1.0876, slightly below yesterday's intra-day highs. A re-test of the resistance zone in the days to come seems likely.
The Bank of Canada (BoC) unexpectedly lowered its interest rate to 0.75% from 1.0% on January 21. It was the first interest rate reduction since April 2009. Analysts had expected the second interest rate cut by the BoC. But it has not happened yet.
There were a lot of speeches by Fed, Bank of England and European Central bank officials this week. We heard conflicting opinions. But clear signs of interest rate hike timing were missing. The most officials said that the recent weak economic data was temporary. Nevertheless, some officials downgraded their economic growth forecasts.
'Even though it might not be a valid technical argument, history has proven that when it looks the worse things might take another route. This might be a dangerous bet as the trend is your friend but oversold stays oversold.'
That was the concluding sentence of my blog entry dated March 12th 2015. A day later the single currency set a new 12-year low against the greenback at USD 1.0461 and then started to climb. Currently the euro is trading at USD1.1033 -572 pips higher.
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