I kept well off the screens whilst away but unless you’re holidaying under a rock it’s hard not to keep track of the news.
I caught the headlines from the BOE and ECB rate meetings, and just going by the headlines alone, my take was that both CB’s had been in contact with each other over the forward guidance issue. It was too coincidental that they both announced measures the same day.
Obviously it was Carney’s first MPC meeting and I did expect him to make a mark somehow and he did with the statement.
We’ll have to wait and see what further impact Carney has over MPC procedures and tuning them to his way of doing things. I fear he’ll have a big battle if he tries to sway too far from the party line, even if it’s of benefit to how they run things.
If he comes in with a sledgehammer approach he’ll fail miserably. If he uses a gentle tact we could see some big changes. I would assume one thing he’ll push for is a press conference after a rate decision rather than the ‘bugger all’ we got previously
With the Eurozone still the UK’s biggest trading partner I’m wondering whether Mr Carney will be keeping in closer contact with Draghi in a more public fashion than Mervyn King may have. Maybe we’ll here of more recognition between the two CB’s. Sir Merv was always in the “What goes on in Europe is down to Europe” camp
It would certainly make sense that, where possible, some policy runs parallel with our neighbours.
I’m going to be looking closely at EUR/GBP as the UK data doesn’t justify the increased expectation of additional QE nor the dovish expectations of Carney. Rates aren’t going lower with inflation so high and good data continuing.
Those that have followed me know that I have said I see the UK recovering well ahead of Europe and the figures are starting to back up my call.
I don’t see the UK economy going on a moon shoot but it will continue to come off the previous years lows and float around in positive territory.
On the European side I just can’t see a recovery coming anytime soon. I still think there is a way to go before it even bottoms out.
I’m going to be a seller of the pair and I may start small against the recent highs at 0.8630/35. I’m prepared to sell on up to 0.90 (dependant on the reason for the moves).
US non-farm payrolls got everyone’s knickers in a twist but I’m not buying into it. The article Mike noted earlier, US NFPs don’t tell the full story broadly follows my reasoning that the numbers are papering over the truth. The level of part time employment is rising. It’s happening in the UK and Europe as well.
Now that is fine if there are prospects for the part time jobs to turn into full time positions and one would think that is what is hoped. That’s not the reasoning though from a business perspective.
Part timers are cheaper and easier to shift if things turn sour. There’s less protection and entitlements to PT’s and companies know that.
If the road to recovery is full of potholes and surprises then the jobs data is going to become very volatile and unpredictable.
There’s still a great number not participating and they are waiting in the wings. It means we will have to continue to look deeper than the headline numbers.
The US data hasn’t been the best over the last month or so and that seems to be being ignored by the taper crowd. The markets are jumping on any good news while poo poo-ing the bad. Again, that’s not a good recipe for the prices we are seeing.
So with all that in mind and taking the Japanese equation out of the picture I’m very sceptical about the dollar levels at the moment. I would love to buy cable down here but I don’t want to fight the market just yet as there may be some further moves to come out. If we slide through 1.48 then I’ll be looking to start picking up longs down to around 1.45. I may even push the boat out to the May 2010 lows of 1.42.
It does pay to take a break from from the screens now and again, be it a day or two or a couple of weeks. It helps refresh your thoughts while relieving the pressures from the everyday grind.
Trading is all about keeping a clear head and hitting the reset button now and again is just the ticket.
