Inflation on the rise in Europe

UK employment data
produced mixed results with the claimant count rising to 8.2K vs. 3.3K
projected, the eight consecutive monthly rise.
GBP/USD meanwhile
tried to stabilize around the 1.7400 figure as the data contained some good news
as well, namely that average earnings ex-bonus rose by better than expected 4.0%
on a year over year basis. Overall, at 4.7%, the UK economy still maintains one
of the lowest unemployment rates in G-7 universe second only to Japan’s 4.3%

The battle for the economic future of England is
being fought between British Retail Consortium and the Bank of England with the
former demanding lower rates to stimulate consumer demand and the latter
maintaining a hawkish stance as concerns mount over escalating inflation. For
the time being the BOE appears to have the upper hand as UK eco data though
hardly robust, appears to have stabilized providing cover for the Central Bank
to keep rates steady.

Meanwhile in Europe, inflation in Germany rose at
the fastest pace in four years as surging oil prices have made their way through
the supply chain. The EUR/USD traded back to the 1.2000 figure after reaching
1.1952 — a weekly low earlier in the session. Although many analysts forecast
further downside for the European currency, weighed down by anemic growth and
persistent political problems, we feel the much more likely scenario will be a
mind numbingly boring range as neither the euro not the greenback will offer
strong fundamental reasons to be bullish for the long term. In fact with the US
Trade Balance figures due out this Thursday and the EUR/USD at the bottom of its
recent range the risks are stacked decidedly against solar bulls unless the
trade data contains a major positive surprise.


Boris Schlossberg serves as Senior Currency
Strategist with Forex Capital Markets in New York, the largest retail forex
market maker in the world. He is a monthly contributor to SFO Magazine with
articles focused on understanding proper risk management, trader psychology and
true market structure. He is also a featured expert at and a frequent
commentator for the Marketwatch From Dow Jones Currency and Bond Report