A Forex View From Afar

A Trader's Look At A Trader's Life

Forex Analysis

Inflation in Europe and the Dollar trend

Written by A Forex View From Afar on Tuesday, January 08, 2008

Back to www.thelfb.com

Inflation in Europe and the Dollar Trend; It may not be what you want to hear.

Full Details and Analysis. Please add your Comments.

Inflation is sweeping through Europe, and the Central Bank, ECB, has to take an important decision this week; either to keep the current rate of 4.00% or to follow the US and UK and to cut Rates to counter the vicious effects of sub-prime lending.

Within the Industrial Production Prices, Energy Inflation is the biggest of them all, growing 7.8% a year, and 3.2% from one month before.

Inflation is out there, affecting the European price stability but also some other serious problems, like sub-prime, are out there, which by definition are appealing as deflationary. Even if the Euro-area hasn't been already been hit by the sub-prime, except UK, the global environment has been, and it has to follow the trend, to provide liquidity to the markets.

Now, the Euro-Zone may not need a Rate cut, but neither does it need a Rate increase. Reaching price stability over the long and medium term can be done without having to adjust the main Interest Rate. It can be reached, even temporarily, by steering short term Rates, influencing money markets or the best method of them all, using fiscal policy (what US is trying to implement now).

Traders are expecting that Mr Trichet will use the word "vigilant" in his speech at 08:30 EDT as many times as he can, doubled by words like "strong,” “continued” and “extremely", his usual Hawkish lines. His words will be complemented by the usual volatility in price valuations on the Euro based Pairs.

As we covered in our Broadcasts and Alerts, the Markets are now caught in channel and until the Interest Rate decisions, any major breakouts will come with huge volume if they are to hold.

Even if most Traders say that the US is going into recession, the Dollar is now getting support from traders buying Bonds. They could also expect the Dollar to get a boost from Mr. Bush's plan to cut taxes in order to help consumers.

We are really curios if this will lead to obscurity over time, like the SIV Super Fund maybe.

"Dollar slightly positive"

You can watch Trichet speech here: http://event.netvision.de/basic_dispatching/?ecb_080110_stream_video

Related Posts by Categories

TheLFB Team & The View From Afar Blog

© 2008 A Forex View From a far Trading Blog

Trade Desk View

Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

Want to subscribe?

Subscribe in a reader.