EUR/CHF comment
The unit did a very good job in holding the bullish MA’s cross overnight (it looked like a new false cross would take place after Friday’s sell-off), and this might push the unit towards its extreme OB level 1.6220 and close to key dynamic resistance level 1.6230-40.
Retailers mixed, paring GBP and EUR shorts
Retailers are still inclined for more USD gains as ratios show more USD longs than shorts. However, those ratios have changed quite considerably over the last 24hrs after the intense USD rally of this morning. I believe we’ll see another flip in market sentiment if USD progresses further, with some serious stops being targeted afterwards.
No rate hikes in prospect for the UK – Sunday Times
According to the Sunday Times article: “The BoE’s message on interest rates in recent days was intended to be neutral, sources say, and not a signal that the MPC is contemplating early rate rises”. Sentance says: “Businesses and consumers are feeling the squeeze from higher fuel and food prices, while the difficulties in the banking system and a weakening housing market are adding to economic uncertainties. These factors should lead to much slower economic growth and a weaker labor market over the next year or so–helping to offset the upward pressure we are seeing on inflation from rising energy and food prices”.
Sentance and Tim Besley are viewed as the most hawkish members of the MPC, having voted against April’s 25bp base rate cut to 5.0%.
Backfiring continues
EUR/USD is testing 200SMA 30m chart @ 1.5535, and a break should see a test of the broken trendline @ 1.5560-65. USD/CHF so far is holding above the broken downtrend line @ 1.0420, a break lower should see 1.0370-75 coming into play. GBP/USD is the lagger of this move, as the unit is STILL trading in/around extreme OS condition, thus not being the best vehicle to think of long USD positions; on the contrary, the unit has more room for backfiring than the other 2 Europeans if it is to do so in the end.
The IFO ‘think tank’ does not support an ECB rate hike – Bloomberg
A possible interest rate hike by the European Central Bank “doesn’t make much sense,” as high energy and food prices are unlikely to trigger broad-based inflation amid a cooling economy, Ifo think-tank economist Gernot Nerb told Bloomberg TV Monday.
Nerb said the ECB isn’t capable of controlling the volatile pricing of food and energy products and shouldn’t increase its interest rate, because an already cooling economy will also ease price pressures.
ECB President Jean-Claude Trichet recently signaled that the rate-setting governing council could raise interest rates to 4.25% from 4% at its July 3 meeting, to combat high inflation.
German business confidence sharply deteriorated in June in the wake of record-high oil prices and a weaker export outlook, a survey from the German Ifo Institute showed earlier Monday.
The Ifo business climate index fell to 101.3 from 103.5 in May, well below economists’ forecasts of 102.3.
Nerb said high energy prices are responsible for weakening business expectations, while the strong euro isn’t as much of a problem.
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