Items Tagged With April 2006

Well, it’s official. Growth in the manufacturing sector slowed down last month. As a result the dollar saw losses against the euro on Monday. The manufacturing activity index which was pegged to touch 57.9 instead came down to 55.2 from 56.7 in February. The U S payrolls report is due this Friday.

The euro on the other hand saw significant gains against most major currencies. The euro’s run was mainly fueled by speculation the European Central Bank (ECB) will leave interest rates unchanged when it meets this week. The bank is also expected to indicate a possibility of interest rate hikes beginning May. But analysts are confident the dollar will emerge the leader yet again by the end of the week.

The Peruvian central bank has indicated it will raise interest rates in order to prevent the sol from weakening ahead of the country’s presidential election. Other measures it is contemplating to counter the situation include buying the currency and selling debt linked to the US dollar. The sol lost 2.2 percent last month which was one of the worst against the dollar. The candidate pegged to win the first round in April is seen as likely to do away with so spending restraints.

It was this tightening that helped keep the inflation rate at a low of 2.5 percent. This inflation figure is also the lowest in the region. Peru has South America’s sixth-largest economy. The country’s central bank last month increased the benchmark lending rate to 4.75 percent. The economy is expected to grow at least 6 percent this year.

Headlining a recent spate of economic data was the monthly report on EU manufacturing data, which indicated Euro-area manufacturing is growing at the fastest rate in nearly five years. Echoed by other economic indicators, the data suggests that the European economic recovery is slowly feeding into labor markets. On Thursday of this week, the European Central Bank is scheduled to meet to discuss the future of EU economic policy. The consensus is that the bank will leave rates unchanged at this meeting, but will signal the likelihood of a rate hike in May. The Financial Times reports:

The strength of the indices suggested the stronger growth expected to be shown in gross domestic product figures for the first quarter of 2006 would continue into the second quarter.

The sterling fared no better than the dollar on Tuesday. It touched an eight-month low against the euro on the same kind of diversification talk which handed a blow to the dollar. But the damage to the pound was not as severe as that suffered by the dollar and the yen. The currency was up 0.9 percent against the greenback.

The sterling also got some back-up from steady economic data. Signs of a recovering housing market seemed to be the reason many made mortgage equity withdrawals. The Bank of England, meanwhile, is expected to keep rates at 4.5 percent when it meets this week. This might be to its disadvantage since the euro zone is likely to see some interest rate hikes this year.

The dollar’s good cheer after Fed interest rate hikes yesterday, disappeared on Wednesday. The dollar had seen its highest gain against the yen in three weeks following the Fed’s announcement of taking interest rates to 4.75 percent. Fed Chairman Ben Bernanke has hinted at further interest rates to come. However, those gains were erased today on remarks by a senior Treasury official asking China to further appreciate its currency.

Rate increases make the dollar more lucrative to investors. The Fed has raised interest rates 15 times since June 2004. The current interest rate is 4.75 percent which is more than the 2.50 percent in the euro zone, Britain’s 4.50 and Japan’s zero. Euro zone rate are predicted to increase this summer.

Federal Reserve chairman Ben Bernanke's announcement on Thursday regarding the possible pause in the interest rates hike led the stock market to react in a positive manner. The optimism was evident as it overrode the fear of a pending hike in Chinese interest rates and reposed its faith in the strength of the economy.

In spite of this,the suspension of interest rates hike by the Central Bank will be an acid test to see whether it is successful in keeping the inflation under check. According to John Herrmann, Director of Economic Commentary at Cantor Fitzgerald LP in New York,

"Without Fed vigilance, there's a pretty good chance that rising energy and material prices will begin to impact core inflation."

More on the Central Bank here

Rob Booker for AUD/USD (4-hour chart):

I am considering two trades on this pair:

1. On a break below the redline, I think we can get all the way to the 38% retracement at .7219.  A break of that level should take us as far as .7180.
2. I would really like to see a resumption of the uptrend that we were in before – and this would happen above .7350.  On a break above that level, even to .7365, I like a long trade, stop .7300, target at least .7500.  More on that if the trade opens.

There's a new forex article on Investopedia about trading your own trading style. 

Are you as patient as a fisherman or do you thrive the downhill thrills of finishing a snow boarding run?  Fisherman are trend traders and Snow Boarders are faders.  The point of this nonsense is that you have to trade to your style.  If you hate fishing, why trade like a fisherman.  The conclusion is:

Trade to your Taste

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