Interest Rate Focus Key to Market Direction
Markets have opened the week consolidating on last weekâ€™s fundamentals, trading within and not exceeding recent technical ranges.
Last weekâ€™s news from both the UK economy and the Euro-zone was mixed and was traded accordingly with a wide trading range and much volatility. Retails Sales in the UK expanded at a slower pace than expected and the UK trade deficit widened, surprising most market participants. The BoE held both interest rates and the QE program at Â£200bn and the market now looks towards the end of the month to get an insight into what was discussed and how monetary policy will play out into this year.
Inflation in the UK is currently over 3% and most market participants expect an increasingly hawkish stance from the BoE this year to deal with inflationary pressures. The economic docket for this week is expected to show a rise in CPI to 3.4% in the month of December, this is expected to force an ongoing movement in the pounds upward trend as markets start to price in interest rate moves.
Credit Suisse has already stated that based on interest rate swaps, the market has priced in a 50 basis point move for this year. This could increase once the minutes from the BoE meeting showing the MPC members current stance.
The Euro is suffering from extreme volatility. Last week saw selling pressure at the start of the week on fear that the bond auctions would cause difficulties. When the bond auctions went well markets fearlessly bought back into the Euro on the short term good news. Markets did however settle and have now sold the Euro back in trade on Friday and opening trade this week.
Analysts expect the markets to consolidate this week with volatility expected associated with news on sovereign debt risk and interest rates. If you have a currency requirement and have any questions or queries with reference to the markets please donâ€™t hesitate to contact me.
Torfx Currency Dealer
â€œAny opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.â€
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