It is widely expected that the ECB will keep rates steady at 1.00%. More of the attention will undoubtedly be focused on the subsequent and always entertaining Trichet press conference. The ECB forecasts and accompanying central bank language will generate some volatility after hints are given into future direction of monetary policy.
OPENING COMMENT
A data light session in Asia, with the only real economic releases coming out of Australia. On the whole, the results were less than impressive with service sector activity still remaining in contractionary territory at 48.0 (although improving from the previous print), while the trade deficit came out much weaker than forecast. Although GDP on Wednesday was solid, there has been enough of a cloud over the Aussie this week to start to attract fresh offers ahead of 0.8500. The big detractor from the antipodean came earlier in the week, with the release of a more dovish than expected RBA outlook.
Moving on, there has been a lot of talk about exit strategies with the latest coming from Fed Plosserand Treasury Secretary Geithner. Plosser was out several hours ago saying that it was necessary to begin to pull back extraordinary programs to avoid inflation threats. The Fed official was also quite hawkish after saying that the Fed had to be prepared to move faster on rates than some would expect. Although Geithner also conceded the need to begin to think about an exit strategy, the Treasury Secretary was somewhat more reserved after saying that it was still too early to plan an exit. Elsewhere, a New York Times article said that the Obama administration is now considering a plan to have the “too big to fail” banks maintain larger capital adequacy reserves.
Risk appetite is mixed on the day with some market participants reducing positions on the news that China’s banking regulator has suspended approving new business for banks with capital adequacy ratios below 9%. Other traders however have found comfort on China’s reaffirmed commitment to develop the local equity markets. Finally, Fitch has come out affirming Japan’s long-term foreign and local currency issuer default ratings at “AA” and “AA-“respectively.
FX markets have not moved all that much since the open, but the commodity bloc currencies have outperformed on the day relative to the greenback, while the Yen lags. Global equities are mixed, and commodities trade flat. Looking ahead, Eurozone services PMI (49.5 expected) and UK services PMI are due at 8:00GMT and 8:30GMT respectively, followed by Eurozone retail sales (0.1% expected) at 9:00GMT. All eyes however will be more keenly focused on the ECB event risk at 11:45GMT, in the form of the central bank interest rate decision. It is widely expected that the ECB will keep rates steady at 1.00%. More of the attention will undoubtedly be focused on the subsequent and always entertaining Trichet press conference. The ECB forecasts and accompanying central bank language will generate some volatility after hints are given into future direction of monetary policy.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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