- Overnight Interest Rate Update 02.09.10 Tue, 09 Feb 2010 05:24 GMT
- RICS Survey Hints UK House Prices May Decline as Supply Swells Tue, 09 Feb 2010 04:41 GMT
- UK Retail Sales Growth Worst in 15 Years in January, says BRC Tue, 09 Feb 2010 02:19 GMT
drivers of price action
Article
Previous Articles
Print
- Feb, 08 Euro Re-establishes Risk Correlation on Sovereign Credit Concerns
- Feb, 04 Yen Soars As Risk Trends Dominate Price Direction
- Feb, 02 Pound Losses Slowed As Risk Appetite Rises, BoE Could Set New Course
- Feb, 01 Euro Finds Limited Support From Risk Appetite, As Correlation Weakens
- Jan, 28 USD/JPY Weighed By Lower U.S. Interest Rate Expectations
- Jan, 29 Canadian Dollar Pressured As Crude Falls For Fourth Day
- Jan, 27 New Zealand Dollar Taking Cue From Yield Expectations with Rate Decision Looming
- Jan, 26 Pound Taking Its Cue From Equity Markets As BoE Likely To Remain On Hold
- Jan, 25 Euro Finds Support As Stocks Regain Footing
- Jan, 21 Canadian Dollar Dragged Lower by Falling Oil, Technical Levels Could Slow Losses
- Jan, 20 Pound Remains Supported Despite Prevailing Risk Aversion As Yield Expectations Grow
- Jan, 19 Euro Regains Footing On Positive Equity Markets Which Continue To Dictate Direction
- Jan, 15 USD/JPY Looks To U.S. Interest Rate Expectations For Direction
- Jan, 13 Australian Dollar’s Correlation With Commodities Weakens, As Interest Rates Come Into Focus
- Jan, 12 The Pound Rises on Strong Exports, Will Weak Equity Markets Reverse Gains?
- Jan, 11 Euro at Risk with ECB Rate Decision and Earnings Season Approaching.
- Jan, 07 Pound Looks to Risk Trends for Direction, As BoE Remains On Hold.
- Jan, 04 Euro Follows Stocks Higher, But Will Friday’s NFP Alter Relationship?
- Dec, 23 Canadian Dollar Finding Support on Firming Oil and Yield Expectations
- Dec, 22 Pound Continues To Fall Despite Improving Outlook For Interest Rates
The Euro is back testing psychological resistance at 1.5000 as equity markets have regained their footing on the prospect of a prolonged low interest rate environment. The major central banks have remained consistent in their message that removing stimulus efforts at this time would threaten the scope of the recovery.
EUR/USD
The Euro is back testing psychological resistance at 1.5000 as equity markets have regained their footing on the prospect of a prolonged low interest rate environment. The major central banks have remained consistent in their message that removing stimulus efforts at this time would threaten the scope of the recovery. Risk sentiment continues to dictate the pair’s price action with it currently explaining 61% of volatility. The influence of interest rate expectations from the ECB has accordingly diminished from a week but will grow in importance as we head into 2010.
ECB Interest Rate Expectations
Overnight index swaps are now pricing in 89 bps of rate hikes following the better than expected Euro-zone PMI figures which showed that the manufacturing and service sectors expanded for a consecutive month. Activity is at a two year high adding to the argument that downside risks are diminishing and raising the outlook for the degree of tightening from the central bank. Although, policy makers aren’t expected to change the course of monetary policy over the near-term, they may take an aggressive approach once they make the determination to raise rates. Regardless, yield forecasts will continue to have limited influence on price action until inflation becomes a concern for the ECB.
FOMC Interest Rate Expectations
U.S. interest expectations remain in a downward spiral with Fed Fund futures now pricing in only a 9.5% chance of a rate hike in March which is sharply lower from 41.0% a month ago. A 10.1% improvement in existing home sales during October may start to raise the outlook for future tightening but like the ECB without a threat of inflation the Fed will most likely remain on hold for the foreseeable future. Wednesday’s releases durable goods orders, personal income and personal consumption will be closely watched as markets look for signs that recent improvements in demand are sustainable.
Risk
Today, stock markets chose to focus on the current low interest rate environment and ignore the potential withdrawal of government stimulus sending the Dow back above the Fibo resistance at 10,328. The 50.0% retracement of 14,198-6469 is a significant barrier and a clean break above could lead to an extended move higher with potential to 11,000. If this were the case then we could see the EUR/USD break above resistance at 1.5000. However, the resistance level could still hold and a false breakout is often followed by a retrace.
To discuss this report or be added to the email list contact John Rivera, Currency Analyst: jrivera@fxcm.com
DailyFX provides forex news on the economic reports and political events that influence the currency market.
Learn currency trading with a free practice account and charts from FXCM.
Resources
