Hey folks,
We've seen a big flip in sentiment here with regards to the stress test results. With a lot of the numbers leaking out early, we've seen some major risk appetite flowing into the markets as the results do not seem all that bad. Those banks (I believe the number floating around is 10 out of the 19) that need more capital are optimistic that they will be able to raise it easily and the markets are agreeing with them. This, coupled with a much better than expected ADP report today (buy trade opportunity on EUR/JPY as previewed yesterday) has sent equity indexes and some commodities to new highs. Very positive AU Employment/Unemployment data led to a great trade there as well. The commodity strength is also benefiting gold somewhat. I'm going to refrain from any predictions on the markets today as I see a lot of mixed currents brewing... even if optimism persists tomorrow, once the results are released, we could notice some "buy the rumor, sell the news" type activity and profit taking that could send markets lower after the numbers hit, or we could get continuation... it's hard to say. We're seeing the EUR/USD de-couple a bit from the risk trade as the European economy is seen as lagging in the recovery and S&P downgraded 5 German banks and put them on further watch negative. For Thursday:
0700 UK
BoE Interest Rate Decision (no change at 0.50% expected) - Expectations are almost unanimous that the BoE will leave rates unchanged, but as with last month the bulk of the price action will come as a result of optimism and expanding purchase programs (GBP positive) or pessimism and scaling back of purchase programs (GBP negative)
0745
ECB Interest Rate Decision (0.25% cut to 1.00% expected) - Economists are unanimous in looking for this 0.25% cut. No statement will likely be released with this decision, so the only trade opportunity here at 0745 is in the interest rate decision itself.
If they do not cut and leave rates at 1.25%, EUR/USD should rise quickly by 50 pips or more.
If they cut further than expected to 0.75%, EUR/USD should fall rapidly by 50 pips or more.
0830 Trichet's post interest rate meeting speech - Here the markets will digest his commentary to gauge the liklihood of further cuts below 1.00% (EUR negative if pitched as a likely outcome). Also, optimism will be seen as EUR positive and pessimism EUR negative.
1615 Bernanke and Geitner Stress test results briefing - It's unclear whether this will be an official release of the stress test results, or whether they will be released earlier and this is the press conference that will discuss them. In any case, expect some added
volatility around this time and as I mentioned earlier in the signal, anything can happen here.
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Forex Trading Signal 05/07/09 -
05-07-2009, 07:15 AM
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