All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Could BoE and ECB Rate Decisions Surprise?

Last updated 2/5/2009 4:16 AM ET (GMT -5) 0 Comments - Add your comment

• Share this:

Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Asian and Eurpean equities fall as risk aversion returns
• Buffett to make a 2.8 Billion investment in Swiss Re
• Unilever fails to provide guidance for 2009 citing economic uncertainty
• Oil at 40/bbl in Asia
• Gold at $905/oz.

Overnight Eco

• NZD Employment Change 0.9% vs. -0.7% called
• NZD Unemployment Rate 4.6% as expected
• EUR German Factory Orders n/a
• GBP BoE Rate Decision n/a
• EUR ECB Rate Decision n/a

Event Risk on Tap

• CAD Building Permits expected at -5.0%
• USD Unemployment Claims
• USD Prelim Nonfarm Productivity expected at 1.0%
• CAD Ivey PMI expected at 39.0
• USD Factory Orders expected at -2.7%

Price Action

• USD/JPY runs to 8975 at start of Europe but 9000 caps for now
• AUD/USD makes a run for 6500 off better kiwi data but stalls as equities drop
• GBP/USD holds 1.4400 ahead of BoE
• EUR/USD rangedbound at 1.2870-1.2800 as traders await ECB

Euro and pound were generally range bound in early European trade as the currency market awaited rate decisions from both the BoE and the ECB due 12:00 and 12:45 GMT respectively.  With economic calendar essentially barren trading was likely to remain choppy as EUR/USD tried to hold on to the 1.2800 level while cable consolidated around 1.4400.  

Ironically enough the closer we move towards the policy announcements the greater the disagreement in the marketplace regarding the possible policy direction of each Central Bank.  Although the consensus call is for BoE to cut rates today by 50bp to 1.00% - the lowest overnight lending rate in the 300 year history of the institution – a minority view suggests that the BoE may remain stationary for a month longer.

Despite the fact that the UK economy is mired in a deep recession , the latest PMI survey data, which surprised to the upside in all three reports, suggests that perhaps some sort of nascent stabilization is taking hold. With rates already at record lows, some analysts question the efficacy of further cuts that are unlikely to have much impact on growth. Indeed with pound having fallen more than 6000 points since the summer, the danger of importing inflation becomes quite real.

With key inflation metrics due next week, the MPC may choose to forgo a cut at this meeting deciding to reserve some ammunition for next month.  Should that occur sterling could stage a knee jerk bounce above the 1.4500 handle as the consensus view would be caught wrong footed.

On the other hand, the ECB has explicitly stated that it will not move on rates until the “rendez-vous” in March. The ECB does not like to surprise the markets, therefore the chance of an early rate cut is relatively slim. Nevertheless, many market watchers wonder what exactly is the ECB waiting for? European gauges of economic activity have shown nothing but contraction for the past month with German unemployment rising by nearly three times the market expectations.With the highest rates in the  G-3 and inflation contained way below the central banks 2% target, Mr. Trichet and company  certainly have ample scope to ease.

Although the  consensus view is still the most likely outcome today, should one or both central banks surprise the market the reaction will be swift and sudden especially in the EUR/GBP cross which continues to come off its recent highs as interest rate expectations between the two economies start to align.

FX Upcoming

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Loading...

About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.