Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Deflation Threat to Quantitative Easing Currencies

Currencies / Forex Trading Oct 14, 2009 - 01:31 AM GMT

By: Ashraf_Laidi

Currencies

Even the tumbling USD has hit a 5-month high against the British pound. Such is the state of the deteriorating GBP as UK CPI hits a 7-year low at 1.1%.


Slowing UK CPI highlights the ensuing threat to QE currencies (USD, GBP) as diminishing inflation urgency enables central banks to further liquefy bonds across the yield curve and cap rising yields resulting from higher govt borrowing. While US corporate earnings will comprise the focus of the trading week, slowing inflation will be the macro focus from the UK , US, Canada and Euro zone.

Rising rates of savings and unemployment in a disinflationary environment will only lead into further cost-cutting at the expense of exacerbating falling payrolls and work hours. These dynamics are especially cogent in the case of sterling, whose central bank finds remains unfazed by currency weakness (unlike the Fed) and is mainly preoccupied by the risk of double dip and the yield impact of 12% of GDP deficit.

As GBP is damaged by an alternating onslaught of BoE pronouncements, sobering forecasts from think tanks and austere spending programs from politicians, the currency remains the choice of the bears during risk aversion as well as during improved risk appetite, selling it against CAD, AUD, NZD and EUR.

GBPUSD hits 5-month lows, testing the key $1.5730 support -- 38% retracement of the move from the 1.3660 low to the 1.7013 high. A close below $1.5730 is to clear the way for $1.5550. Any corrective rebound is seen limited at $1.5920.

EURGBP hits fresh 7-month highs at 0.94, a break of which clears way for 0.9455. This supports our year-end target of 0.97 and expectations for parity in mid Q1 2010.

Canadian dollar's jobs-driven surge is extended by persistent gains in surge extends on the back of the 4th consecutive daily gain in oil prices, as US crude breaks above $74.00, calling into focus the major resistance of $75.41 -- 200 week moving average.

The unfolding strength of the Canadian dollar has yet to extend against the euro and the Aussie. FX price patterns have shown CAD strength to ensue across the board in weeks following upside surprises in Canada 's job situation. Last week's release of a stellar employment report showed a net rise of 30.6K jobs in September -- the first back-to-back monthly net job creation since Sep-Oct '08. The decline in the unemployment rate to 8.4% from 8.7% was the first decrease since July 2008, an added boost to the currency.

USDCAD extends its losses to 21% year-to-date, hitting a 14-month low of 1.0270. Technically, there is little support before 1.0240 (the highs from Feb-Jul '08). FX markets should expect to hear interventionist remarks from the Bank of Canada, which did include the currency factor as a source of difficulty in its last policy announcement.

EURCAD has fallen below our Friday target of $1.5320, reaching 2 ½ month lows, and is set up for prolonged medium term losses towards 1.5250, followed by 1.5130. Despite the speed of the selling over the last 3 sessions, relative momentum indicators (momentum vs. price) indicate prolonged losses on the weekly horizon. A rebound to no more than 1.5440, before the aforementioned targets are considered.

By Ashraf Laidi
AshrafLaidi.com

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.

Ashraf Laidi Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in