Thursday May 6, 2004 - 18:49:03 GMT
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Interest Rate Play in Europe…is the US next?
The Bank of England raised its benchmark interest rate today, while the ECB held off from making any changes to its six-decade low rate of 2%. The expected increase by the BOE of 25 bps came along with the statement that inflationary pressures are likely to build despite a higher level of sterling than at the beginning of the year. The market interpretation was bullish on the sterling, which reversed a decline against the euro and gained 0.7%, its biggest rise in 6 weeks. However, its gains against the dollar were curbed by good economic data coming from the US. The initial jobless claims dramatically fell to a 3-year low of 315k, boosting speculation that the labor market is rebounding and that the Fed might lift its benchmark rate as soon as next month. A key support level in the Euro was broken at 1.2115 as it slid to a low of 1.2060/65. Tomorrow’s unemployment rate, if better than expected, will be paramount in bolstering the conjecture that a Fed rate hike may be around the corner. In other currency news, the yen was put under pressure as the equities market in Japan tumbled. The Nikkei came off 1.7%, extending yen losses in the past 4 days to 4.9%.
TECHNICALLY SPEAKING: Euro has currently dipped below its 30 hr moving average. Trend line support has been broken at 1.2110/20. The Relative Strength Index has turned below 50.0 and sits at 36.70 on a 60 minute chart. There is key support at 1.2050 and further support at 1.2020/30 and resistance at 1.2110 and 1.21.30
GAIN AN EDGE: We will sell Euros at 1.2130 with a 1.2180 stop and a take profit at 1.2000
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