Market Outlook – 18th Mar ‘09

Howdy again folks, it has been another day of USD strength yesterday, primarily after the US Building permits and the US PPI m/m gave out surprisingly strong numbers. It had caused immediate downtrend for slightly less than 100 pips on the G/U and the E/U, but this didn’t cause an overall trend change as the market bears quickly lost strength and price retraced to almost pre-news levels. For E/U, it had retraced even higher than pre-news level, which should spell a few cents worth about where the market is placing its risk appetite with.

Overall, i see the market in risk appetite mode still, but the moods this morning since the Asian session so far have been pretty ranging. I am going to pay particular attention to Gbp/Usd today, where we have a couple of reasons to speculate on;

1) The UK monetary policies have upstepped its efforts to ease the market credit crunch by introducing more fiscal policies into action. The rate cut decision to reduce interest rate to 0.50% doesn’t leave much room on the downside. With such options being eliminated, and the sterling always poised as a more higher yielding currency to attract more inbound asset flow and imports, will not want to go any lower than that rate. Most obviously with the USD interest rate just flirting around the same level at 0.25%. The MPC meeting minutes last month had a 0-9-0 vote, which is unanimous decision to cut the rates, and though we expect the same vote today, i don’t see them passing this decision to go much lower. As such, much like the BOJ policy where the central bank chooses to buy back government backed bonds, we might see such a policy too, but i am unsure of what their direction will be. Since Japan is very export driven and UK is import driven, it will be interesting to see which school of thought their monetary policies will take.

2) We also have US Based Core CPI m/m at 8:30am NY, 8:30pm SGT and US FOMC Statement at 2:15am SGT, Tomorrow.

These news in general have a bullish tinge towards the USD and i don’t expct much surprises for a weaker dollar sentiments.

Bottomline

Though these various news events for today are all high impact, especially with Rate decision and FOMC statement from the UK and US respectively, they might not exactly be tradeable as i don’t expect specific numbers coming out, which gives the market a clear quantitative analysis. I suspect the market would be watching for key words and tonality of these various speeche. This makes these news releases very difficult to interprete. If you are not experienced trading this, please stay out.

Otherwise,

Sell Gbp/Usd if Claimant Count Change and Minutes are weak for sterling after 5:30pm news events

Buy Gbp/Jpy if Claimant Count Change and Minutes are strong for sterling after 5:30pm news events (or on retracement)

Happy trading,
Seeni

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