This week we announcements from key central banks: Bank of Canada today, ECB and Bank of England Thursday. We also have Bernanke speaking on Thursday.
The majority of economists and investment banks are forecasting that the BOE will have increase their quantitative easing by another £50bln on the back of very poor PMI data last week. Whilst this is unlikely to happen this week, the comments may cause some volatility.
BOC are widely expected to leave rates alone due to the weak economic outlook globally. Whilst their economy is doing very well it makes little sense considering the backdrop with weakening Chinese growth and uncertainty around the Euro.
Why are interest rates important? Only fundamental economic shifts in central bank policy can change trend. Controlling rates is their way of controlling the growth of the economy. As traders, looking to profit from economic/technical themes or intra-day moves, how do we use this?....
FX basics - If a country decreases interest rates, sell the currency. If a country increases interest rates, buy the currency. For example look at the Australian Dollar (AUD) on the 30 April 2012 where they cut interest rates a quarter basis point to 3.75%....it started the one directional downward move throughout May.
The key news announcement will be on 17 June where the decision on the Greek vote will be released. Considering the opposing views of the two political parties running, on the issue on whether or not stay in the Euro, this could start the beginning of a long term trend and theme which has been lacking this year so far.
Happy trading!
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