Interactive Brokers: weekly update 6th November

publication date: Nov 6, 2008

Rate Decisions Might Determine Euro and Pound Direction…

Today is the big day for markets around the world, as traders await interest rates decisions by Bank of England and European Central Bank. The general feeling is that both banks will cut rates by as much as 50 pbs, however there are some rumors going around that want the banks to cut more than that. Some even suggest 100 points.
EUR/USD is trading within the 1.28-1.29 range ahead of the decision and traders await Trichets press conference for further idea of what the bank decided and why. It will be crucial for markets to hear Trichet and what he has to say about the financial crisis in Europe and form his words we will make sense as to what the next move will be. Many analysts predict that the bank will cut even further in the coming months in order to stabilize the economic situation and give further liquidity into the banking sector.
GBP/USD is trading in a range too, and more than 3 times it has rejected 1.60. Traders are waiting for the BOE decision and there is chatter that the bank will be forced to cut more than 50 points today due to the deteriorating economic conditions. The last speech by Governor King showed that UK is very close to recession and the fact that the last GDP numbers were negative for two consecutive months proves just that! The pair is in a wait and see mode and if the decision shows a cut more than 50 points, it is possible to see further downside.
Let’s not forget that this morning we had economic data out of both Euro zone and UK and both printed really disappointing numbers, with Halifax house prices out of UK printing -2.2% and factory orders from Europe -8%!. The data suggest that rate cuts is the only way to go for now for both banks and let’s wait to see what happens. Apart from the two rate decisions we do not have anything major out of US, so therefore traders will act only according to what the decisions will be.
Both Asian and European markets plummeted this morning and DOW JONES is looking to open negatively too. The fact that US elections came and gone now give more reason for traders to worry about the economic future and how the new government will cope with the latest crisis. Is has been said in the media that the American people and in some respect the markets are waiting Obama like a “messiah who will save” the country from falling, however it is only a matter of time that everyone will realize that the damage cannot be restored that easily and only a miracle can make this go away.
The last speeches that we heard form Trichet showed that the bank is not worrying so much about inflation as the inflationary pressures have eased and now the main goal is the slowing growth,   as the latest economic data show. It will be crucial to listen the exact words that Mr. Trichet will use in terms of the current situation and his tone will tell us if the bank has more cuts in store.
Let’s wait and see what the first rate decision by BOE will be and after that how ECB will react to the latest economic developments and don’t forget that whatever today’s outcome, traders know that the week is far from over, as NFP is tomorrow and that can be the icing of the cake for dollars direction…