Quantitative Easing begins today in the Eurozone. After months of speculation it is strange that the event itself will be met largely with indifference on the markets. Mario Draghi (President of the European Central Bank), already alluded to some of the problems ahead for the program last week. These problems revolve around how to purchase bonds, effectively providing large-scale cash-injections, fairly across all the single-currency members. There are restrictions on which bonds can be purchased which will have to be addressed. Strangely even Germany will have difficulty qualifying as their bond yields are too low. With German Export data this morning revealing negative growth during February of -2.1%, even the economic leader of the Eurozone shall be clamouring for its fair share.
The specifics will be ironed out behind closed doors. It is unlikely these difficulties will reach the ears of the currency markets. Those hoping for another rally against the Euro will be disappointed. The only internal deliberations to have a public affect this week will still be over Greece.
Today the Eurogroup (council of European Finance Ministers) will meet to discuss Greece’s six reform proposals. Details are scarce, but some can apparently be implemented immediately, which heightens the meeting’s importance. Positive comments by the head of the Eurogroup ahead of the meeting suggest the news will likely spell Euro-strength at the start of the week. With new 7-year highs for GBPEUR reached on Friday, the corrective pull-back from positive news could well bring us back into the high 1.37’s.
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The USD stole headlines last week. Non-farm payroll data revealed 295,000 new jobs had been created in February, bringing US unemployment down to 5.5%. Those buying Dollars immediately saw the gains up to 1.55 during February wither away.
We were in the same position at the end of January. QE in the Eurozone was announced and unprecedented gains were seen in US employment. Those hoping to sell USD predicted that Sterling would continue to lose ground due to the sluggish effects of our ties with Europe, and breach the resistance level of 1.5. However, poor US retail sales figures reversed this trend.
This Thursday figures on the retail sector will be released once more. With wages stagnating in the US at the expense of rising employment, it is still difficult for US residents to stretch their budget. So weak retail sales figures are expected, and therefore, I believe the cycle is likely to repeat itself. Last time the rates moved back in the high 1.52’s. Those looking to sell US Dollars should take advantage while this window of opportunity has once again presented itself.
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Unemployment data coming out of Australia was the surprise announcement last month. Unemployment suddenly rose to its highest level for 13 years, headlining at 6.4%. It was more than twice the fall expected by economists, and GBPAUD rose sharply in value as a result.
Since then the Dollar has been regaining some of the ground lost against Sterling. Indications of commodity prices rising made markets more positive about the future of the Australian mining sector. Interest rates were left alone at 2.25%. Furthermore, the tourist season has been in full swing. The resulting increase in AUD purchasers is causing an increase in AUD value. There is likely to be a secondary benefit seen in the employment data coming out on Thursday. Should the tourist industry soak up some of the recent joblessness as much as expected, I am of the opinion rates will spike back into the low 1.9’s. Those looking to buy Australian Dollars should take advantage while the rates are still available.
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