The EU, ECB, and rating agencies have all welcomed the new plan and are seemingly encouraged with the prospects of the mitigation of a potential disaster. Nevertheless, there is still a lot of uncertainty, and it remains to be seen whether the relief rally on the back of this news can be sustained.
Interestingly enough, we have been seeing some reversals in many of the beaten down crosses, with notable bounces in the normally uncorrelated Gbp/Aud and Gbp/Jpy crosses on Wednesday. Generally, the move higher in Gbp/Aud is reflective of a rise in risk aversion, while the push higher in the Yen cross reflects increased investor risk appetite. So here too, it remains to be seen how things play out. However, we could see a situation where both crosses find a way of rallying on the back of alternative themes, specifically relating to local UK fundamentals.
Data released thus far on the day includes a slightly better than expected Australian trade balance, but this has hardly factored into price action, with the single currency underperforming on the day. Meanwhile, in Japan, BOJ Noda has come out saying that extremely easy monetary policy is one of the conditions to “surmount deflation and support demand.”
Looking ahead, Eurozone GDP (0.1% expected) is due at 10:00GMT, followed by the more highly anticipated event risk in the form of the respective Bank of England (0.50% unchanged expected; 200B QE unchanged expected) and European Central Bank (1.00% unchanged expected) rate decisions at 12:00GMT and 12:45GMT respectively. Whiles rates are expected to remain on hold in both the UK and Eurozone, market participants will be watching closely for any changes in UK asset purchases, or a change in the outlook from ECB President Trichet at his post rate decision press conference at 13:30GMT. US equity futures and commodities are marginally offered heading into European trade.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
If you wish to receive Joel's reports in a more timely fashion, e-mail firstname.lastname@example.org and you will be added to the "distribution" list.
If you wish to discus this topic or any other feel free to visit our Forum page