Forex Trader Top 3: Strong Euro, Interest Rates, and Oil
1. Trichet Must Address the Strong Euro This Week
The News:
The U.S. Treasury is presently not discussing monetary policy, other than promoting strength in Asian currencies. A lower U.S. Dollar eases the U.S. National Debt. However, both BOA and ECB report key interest rates this week. Moreover the EU Finance Ministers are meeting this weekend, and the G7 meeting is this Friday in Washington.
The Spin:
Language from Trichet discussing the blistering strength in the euro and the need for the currency to ease could cause the euro to fall this week.
However, if the strength in the euro is ignored altogether the U.S. dollar will most likely take out lows and the euro could easily make a new all time high.
The Bottom Line:
Inflation is rearing its head in the EU and the euro needs to slow down. Trichet and Bernanke need to address the issue, if even in just a few words to the press.
2. ECB and BOE Announce Interest Rates On Wednesday
The News:
Both the Bank of England (BOE) and the European Central Bank (ECB) are expected to report key interest rate decisions this Wednesday. The market is presently anticipating a cut from BOE, though the ECB is expected to hold rates steady.
The Spin:
The subprime and credit crunch are beginning to take a toll on the both the EU and Britain. Both LIBOR and EURIBOR rates are pushing 9-month highs. When banks stop lending to banks, consumers feel the crunch even more.
The Bottom Line:
The Bank of England must cut rates to ease recent subprime woes. The ECB would like to cut rates, but with the euro at highs, inflation is a huge problem. While the ECB may not change rates, comments from the meeting will move markets.
Look for pre-interest rate volatility in ALL GBP and EUR pairs, especially GBP/USD and EUR/USD.
3. Oil is Threatening to Breakout to New Highs – Commodities Too
The News:
In trading throughout the night into Monday, the oil gained $1.18 to $107.41. Most agricultural and mining commodities also rallied… with the exception of corn, which tricked downward The Reuters/Jefferies CRB Index (CRB), measuring a wide basket of commodities, is edging up as well. (See charts below)
The Spin:
Higher oil prices add pressure to the U.S. dollar… something that could easily happen on Monday and Tuesday, ahead of ECB and BOE meetings on Wednesday. However, Friday’s employment situation report disappointment failed to take the legs out from U.S. markets, despite the mainstream media constantly crying recession.
The Bottom Line:
Oil could easily post a new high this week, perhaps as early as Monday. However, if oil does surge and U.S. markets fail to fall through the floor, the days of Chicken Little are done and sentiment is stabilizing. The larger picture is more complicated. The key to this week, however, is this: The U.S. market and dollar have a ton going against them, the true question is whether investors will hold positions knowing better days are ahead, or decid to move with the recent recessionary stampede (which the media is only making worse) and sell.
Mark Whistler is the founder of WallStreetRockStar.com and is the author of multiple books on trading. Mark’s newest book, The Swing Trader’s Bible – co-authored with CNBC/Fox News regular guest Matt McCall – will be on shelves in late summer, 2008. In addition, Mark also writes regularly for TraderDaily.com and Investopedia.com.