[B]Talking Points
• Japanese Yen: Below 100 on anti-dollar flows
• Euro: IFO blow out leads to takeout of 1.5700
• Pound: Follows euro to 2.0100
• US Dollar: Durables on tap[/B]
The IFO survey of business sentiment printed a much stronger 104.8 versus expectations of 103.5 helping to rally the EURUSD more than 100 points in a matter of minutes as euro shorts betting on a slowdown in the EZ economy were forced to cover their position in a hurry. The IFO data suggests that at least for the moment the economy in the 17 member region continues to operate at a healthy pace irrespective of the troubles in US.
The boom in EZ is led by the export sector, most notably in Germany as gains in efficiency coupled with strong demand from emerging markets, have helped producers in metal, electronics and car industries create more jobs in January than at any time in the past four decades, according to an article in Bloomberg.
We have long contended that the ECB will not change its hawkish posture until and unless employment in the region begins to contract. Tonight’s strong IFO results which are supportive of continued expansion in labor demand, indicate that Mr. Trichet and company will not be in any hurry to change their course anytime soon. Indeed in comments this morning he reaffirmed his commitment to keeping rates steady by stating that such policy will help control price pressures caused by elevated energy costs.
In UK on the other hand Governor Mervn King was decidedly more downcast in his assessment of the situation, noting that risks were balanced to the downside. While all the MPC members agreed that the condition of the UK economy was far better than that of the US, they also appear to concur that some slowdown in UK economic activity was likely. The tone of their testimony suggested that UK monetary authorities were considering lowering the overnight lending rate at their next meeting in April. As a result EURGBP gained more than half a cent as traders adjusted for the idea of a possible rate cut. Meanwhile, today’s price action in North America is likely to be dictated by the Durable Goods orders data. The last bastion of hope for dollar bulls is that exports help offset some the negative impact of housing. If the market doesn’t see any improvement in DG data, the greenback may be in for more pain.
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[B]To discuss this article please contact Boris Schlossberg, Senior Curency Strategist: [/B][email protected]