Today may turn out to be one to remember. The European Central Bank will be holding their monetary policy meeting and they are widely expected to raise their interest rate for the first time since 2008 with a .25% increase. Since the move is expected, if it were not to take place – it would be nearly unbelievable and cause an instant effect in the markets. However, its likelihood will probably turn the press conference held immediately afterwards in to must see television. President Trichet will face questions about the intentions of the ECB going forward regarding interest rates, but he will also have to face the music that is emerging regarding Portugal and its acceptance last night that they are too far behind the curve to handle their debt problems alone. Thus, today’s ECB press conference has all the signs of becoming grand theatre and President Trichet’s every word could have significance for global investors.
The EUR held ground against the USD on Wednesday and the GBP stayed steady in its range against the Greenback too. The AUD has gone to new highs as Gold has done the same. Crude Oil has kept pace. The JPY is consolidating in the weaker side of its range. The entire day is shaping up to be a convergence of very large events. The ECB is faced with inflation via energy and food costs, but is also being challenged by modest to weak growth within the E.U. nations. The Portugal move last night should not have come as a surprise to anyone, taking into consideration that Greece and Ireland practiced the same exact dance last year when they denied that they were going to ask for a bailout package. The combination of a rate increase by the ECB and one of its member nation’s now standing in the welfare line on the same day make for an investment dilemma.
The question confronting long term EUR investors is what the implications will be down the road for European banks and more pointedly – Spain, which will now find itself within the crosshairs of a nervous bond market because of today’s events. The EUR is effectively raising interest rates even though many of its nations are still within the strong grip of recession and investors will have plenty to debate in the coming hours, days, and months as this story develops. The EUR has done remarkably well the past few months against the USD. Traders should expect plenty of swift movement for the EUR and because of the amount of questions surrounding the Single Currency there is certain to be volatility both short term and long term.
The AUD has made new highs as of this morning and the currency is being underpinned by a fairly good interest rate which it offers investors, a strong commodity market internationally as speculation continues, and a domestic economy that has been better than most. The price of Gold continues to show that a combination of risk adverse investing and pure speculation are helping the precious metal push forward. As of this writing the price of Gold is about 1454.00. After reaching new highs the past two days, Gold has consolidated and it appears investors are waiting on further international developments regarding the European financial situation, Middle Eastern news, and the continuing saga from Japan.
The U.S. will release its weekly Unemployment Claims data today and the U.K. will hold its Bank of England monetary policy meeting. The news from America continues to be the gridlock that is potentially about to shut down the U.S. government if Congress remains at loggerheads regarding the Federal Budget. The Bank of England is not expected to change their monetary policy today. Both the U.S. and U.K. seem to be practicing a divergent economic philosophy compared to the European Union. Many questions abound regarding the paths their respective Central Banks are taking as they battle on the economic fronts. The broad markets may turn in a rather cautious approach before the ECB takes center stage this afternoon, but as Claude Trichet steps into the bright light traders must be prepared for swift markets.
Written by bforex.com