Thursday December 4, 2008 - 10:42:59 GMT
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FX Blog- GVI Forex Analysis Thread: December 4, 2008 Pre-New York Open
GVI Forex Analysis Thread: December 4, 2008 Pre-New York Open
- Markets are waiting for two key central bank decisions in a short while. The Swedish Riksbank has already surprised the markets with a -175bp rate cut. The next key decision will be by the BOE (12:00 GMT) a -100bp cut in its 3.00% repo rate is priced in the market. We see an outside chance the BOE does not cut by the full -100bps because of GBP weakness vs. the EUR.
- The most significant policy decision comes from the ECB (12:45 GMT). The ECB is far behind the curve in the minds of most observers. A -75bp cut in its 3.50% refi rate is generally expected, although some expect -50bps. The ECB is in a no-win positon at the moment, as the market is likely to be disappointed at anything it does. Even a maxi-catch-up rate cut will be taken as an admission that its policies have been wrong headed.
- The focus of forex trade will likely soon return to equity markets after the bank policy decisions. It was remarkable yesterday that share prices tried to sell off on poor economic indicators, but that equity prices continued to bounce back. Its not the news, but the market reaction to news that matters. This strategy could see a couple more tests this week with two more poor employment reports expected starting at 13:30 GMT with weekly jobless claims (see 540K).
- Far East bourses closed generally lower today. European exchanges are currently higher, and the early call for the open of U.S. shares is for higher.
- The 2-yr U.S. minus E-Z spread is -115bps +4 bps. U.S. bond prices are higher. E-Z bond prices are up as well.
- The USD is higher vs. the EUR, CHF and GBP from late Wednesday. The JPY is higher. Unofficial Japanese (Kampo) forex intervention has been rumored. The volatile commodity currencies (AUD, CAD and NZD) are mixed. Oil is a touch lower and below the pivotal $50 line. Gold is steady. See the GVI calendar for an updated schedule of data releases in the two weeks ahead.
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