A Mike Paterson Forex update

So, what are the Forex markets making of the BOE and ECB actions today? Well, the addition by the Old Lady of a further £75 billion QE has taken a lot of people by surprise, by its timing if nothing else, while the lack of an interest rate cut by the ECB has similarly thrown traders into an increased state of confusion.

Additional/ongoing liquidity measures though, announced by outgoing ECB President Trichet at the all important press conference, has gone some way to appeasing those who felt the ECB were being reckless at best by pandering to inflation rather than addressing the huge debt crisis.

We've seen EURUSD fall to 1.3241 only to surge back through 1.3400 and take out more short positions with the stop-loss buy orders around 1.3410 that I mentioned this morning. We're now back at 1.3395 having capped at 1.3434 in that rush and the coins are still being flipped.

GBPUSD has lagged behind again in the move back up from post-BOE lows of 1.5280 and has just failed at trying to get back up though 1.5400 with EURGBP trying to hold its gains above 0.8700 again having dipped to 0.8667.

With or without the BOE's more aggressive liquidity measures I did say this morning that we should see the Pound weaken and this has proven to be the case once again, and I expect this pattern to continue. Today's BOE action will now turn the spotlight back on the UK and it won't look pretty, although no doubt the government and BOE will blame the Eurozone debt crisis as part of the rationale rather than admit it was any panic measure following yesterday's poor GDP data.

Either way we shall find out soon enough as BOE Governor Merv King is due to explain all at 17.00 BST.

Meanwhile we try to make sense of what's happened and as importantly work out the net impact over the rest of today and next few trading sessions. It could be we see a further squeeze on the short- Euro positions that prevail still but today's ECB measures or the capitalisation of the banks doesn't solve the problems. They merely put a cushion or two under the fall at best, with the cans continuing to be kicked down the road.

The guessing game continues…………

Weekly Economic Calendar-HERE

Interbank Rates as of 15:32 BST

EUR/USD

1.3410

GBP/USD

1.5380

EUR/GBP

0.8721

GBP/EUR

1.1461

GBP/CHF

1.4147

EUR/CHF

1.2342

GBP/AUD

1.5831

USD/CHF

0.9188

GBP/JPY

76.77

GBP/ZAR

12.2320

Agree or disagree? Then please leave a comment in the box below or contact me by e-mail.

Mike ‘Oscar’ Paterson has been in the Forex trenches for nearly three decades working as a senior Spot trader in London at UBS, Chief Dealer FX at the State Bank of Victoria and in charge of Spot CHF at Credit Suisse with a daily turnover in excess of $1.5 billion. Mike now works as an independent consultant providing a fully bespoke service to the corporate and private sectors in physical FX delivery as well as guiding those who wish to improve their currency trading. Mike also presents seminars and workshops and writes for a number of publications.
To contact Mike please call +0044 (0) 1732 700383 or email mike.paterson@economicvoice.com
The views expressed above are those of the author and should not be taken as investment advice. MSP Foreign Exchange Services will have no liability for, or to, any persons executing trades based on the content above.

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