Forex Trader Top 3: Trichet and FOMC Make Speak about Respective Economies, Crude Price Cooling
Mark Whistler is the founder of www.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.
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1. More Comments From Trichet
The News:
At a conference in Milan, Jean-Claude Trichet worked his usual magic today – pushing the euro to rebound highs in the relative range.
The Breakdown:
Within Trichet’s speech, there was a section titled: “Globalization and its implications for inflation and momentary policy.”
His opening comments in this area were:
“The aspects of globalization I have been describing thus far entail many important macroeconomic consequences for the euro area as well as other global regions. Perhaps most crucial from a central banking perspective is the impact on consumer price inflation. While several ways of classifying the impact are possible, I think that a simple taxonomy of globalization’s influence on inflation into two main channels – direct and indirect – Â provides a useful one in characterizing the effects on inflation.“
Of course any time Trichet mentions inflation, the euro moves higher.
The coupe de grace was:
“Taking a strict focus on domestic price stability as given, continued cooperation amongst central banks can also contribute to global financial stability, for instance in the form of dialogue between central banks and a concerted contribution to solid international financial architecture – an issue to which I will turn next. Before moving to this next topic, I should underline, however, that by international cooperation I do not mean coordination. The major economies of the world have to run their own monetary policies, attuned to their domestic conditions, in line with their responsibilities in terms of price stability.”
The Bottom Line:
Jean-Claude Trichet seems to be in favor of letting the euro cool – but his actions, literally speaking, are having the opposite effect. Policymakers have an agenda and every time Trichet comes to the press with comments on inflation, get ready for a euro rally.
2. Chicago’s Evans on the Press Bandwagon Too
The News:
Chicago Federal Reserve President Charles Evans comments on inflation Monday.
The Breakdown:
In a slightly unusual move, Chicago Fed head honcho Charles Evans spoke at Harper College in Palatine, Ill., commenting on the present state of affairs within the U.S. economy and inflation.
According to the Wall Street Journal, “Evans’ remarks are the first public comments on monetary policy from a Fed official since Kansas City Federal Reserve Bank President Thomas Hoenig stated last Tuesday that inflation has reached “unacceptably high levels.” He suggested that central bankers might decide to raise the federal funds rate at a swift pace to combat inflation.”
What makes Evans comments slightly out of the norm for FOMC rhetoric was the direct indication that should inflation continue to rise – with economic recovery in the latter half of 2008 – rate setters may actually decide to bump up the Fed Funds rate.
Evans’ comments towards deep rate cuts fueling inflation within food and energy prices only bolster this argument. The FOMC will likely hold steady in the June meeting, but the market could easily see rate hikes following.
The Bottom Line:
The Federal Reserve is now also on the inflation comments bandwagon, like Trichet. In general, more comments about inflation and a potentially recovering economy from FOMC members will help to buoy the dollar in the long-term.
3. Oil Cooling
The News:
Oil eases from recent highs.
The Breakdown:
On Monday, oil started to ease from recent all-time highs just above $125 a barrel. The present fair price of oil is sitting in the $105 area. However, the recent rally in crude was a “speculators run”, sparked by supply/demand fears. What’s important to note is that even the president of OPEC came forward last week with comments that there are no supply issues, further mentioning that some suppliers are even having trouble finding buyers.
The question now is whether exuberance will completely set in and if we will see a capitulatory spike upwards in crude. Should crude make another move higher, chartists contend the first relative range target sits in the $130 area, with the second near $140.
Regardless, oil could be in for a short period of cooling, while speculators decide what to do next.
The Bottom Line:
If the price of oil does begin to decline, look for a sympathy rally in the U.S. dollar – at least – if ECB members don’t come forward with more comments on inflation.