Monday August 4, 2008 - 11:08:36 GMT
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Forex Research - Euro Remains Range Bound Ahead of FOMC and ECB Decisions Despite Rising Inflation
â€¢ Japanese Yen: Breaks Above 108.00
â€¢ Euro: Hot PPI Fails To Inspire Euro Bulls
â€¢ British Pound: Construction Slows To Lowest Level In 11 Years
â€¢ US Dollar: Personal Income on tap
Euro spent the overnight trading sessions stuck in a tight trading
range between 1.5525-1.5560, despite producer prices printing at the
highest level in 18 years, as FOMC and ECB decisions loom.
Manufacturers saw costs rise 8.0% from a year ago with a 0.9% gain in
the month of June. A 21.4% increase in energy costs accounted for the
majority of the increase. Meanwhile, the Sentix investor confidence
index fell to -15.3 from -10, which was the lowest in almost five years.
The European economy continues to weaken along with the argument for
decoupling, which has seen the unwinding of those bets. Confidence in
the region continues to deteriorate as worries grow that the ECBâ€™s
focus on price stability may have put the region at risk for a
recession. Manufacturing is contracting and the labor market is
beginning to weaken as companies try and battle the headwinds from the
U.S. downturn, rising energy costs and a strong Euro. The upcoming PMI
services indicator is expected to confirm that that sector which
accounts for 70% of the economy has also fallen into contraction.
Although, we donâ€™t expect Trichet to reverse the 25 point hike from the
central bankâ€™s last policy meeting, but that his focus will shift from
inflation to declining growth.
The Sterling continued itâ€™s downward decent as the prospects of a rate
hike from the BoE have all but vanished. The GBUSD has fallen over 300
points since July 15, breaking below the 1.97 handle for the first time
in nearly a month. The housing market deterioration is accelerating as
tight credit markets have left borrowers on the sideline while the glut
of inventory continues to pile up. Indeed, falling home prices is
weighing on the broader economy as construction dropped to its lowest
levels in eleven years, according to the PMI gauge which fell to 36.7
from 37.5 in June. The central bank is expected to keep their benchmark
rate on hold despite the expectations that inflation will rise above 4%.
Personal spending and income is on todayâ€™s U.S. docket, but these
second tier indicators may have minimal impact on price action with the
pending FOMC rate decision scheduled for tomorrow. Fed fund futures are
pricing in a 91% chance the Fed will leave the overnight rate
unchanged, but can they signal a future rate hike with the housing and
labor markets continued weakness.
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