It may be that we’re in the eye of the storm and that the volatility seen during the previous January trading days returns. End-of-month rebalancing may also have a lot to do with the more risk-on feel for the day. The economic calendar during the London session was fairly light so traders will be keeping their powder dry ready for the fireworks towards the end of the week.
On a yearly basis, German inflation amounted to 4.9% in January, according to a preliminary report released by the Federal Statistical Office (Destatis) in the London session today. Despite rising above the expected 4.3%, the figure was below the Consumer Price Index (CPI) for December, which rose by 5.3%. Consumer prices rose 5.1% year over year in January, while they increased 0.9% from December.
Over a full cycle has passed since the lows in the worst months of the pandemic lockdowns. Any base effects that describe the return to market function after a shock can now be discounted. There is still a high inflation rate and a number of bottlenecks causing inflationary pressures. The biggest factor in inflation remains high energy prices, and with what is happening in and around Ukraine, we may see higher oil prices for a longer period of time.
In the last quarter of 2021, the Eurozone's economy increased by less than expected 4.6% compared to the same trimester of the previous year, according to a preliminary report published by Eurostat today. The figure for the fourth quarter was 0.3%. In terms of GDP growth, Spain and Portugal had the highest increases of up to 2%. Austria, Germany, and Latvia all had negative growth.
The EURUSD responded well to today’s economic news from Germany and the eurozone. I still believe that there is a higher probability that the euro goes lower but that is predicated on my US dollar bias. If the Fed does not meet market expectations or if we get some unforeseen news that depreciates the US dollar, which could even be a low NFP number this week, the effect would be for the euro and commodity pairs to benefit. 1.2600 is a level of interest that I would like to see a reversal from should the EURUSD get up there.s
The Chicago PMI (ISM-Chicago Business Barometer) measures the performance of the manufacturing and non-manufacturing sectors in the Chicago region. To calculate the Index, five raw indexes are weighted: Production (0.25), New Orders (0.35), Order Backlog (0.15), Employment (0.10), and Supplier Deliveries (0.15). Each index is then seasonally adjusted for month-to-month comparisons. Whenever the reading is above 50 it indicates expansion; when it is below 50 it represents contraction, and when it is 50 it means no change. The Chicago PMI is released one day before the ISM Manufacturing Index which is the main manufacturing ISM data point that analysts look to for overall market expansion and possible early signs of recession. Today's reading of 65.2 shows a 3-month expansion and is a good sign for the US economy.
Boris Johnson the Prime Minister of the United Kingdom is now being investigated by the police in a criminal case with allegations that he was in attendance of parties during lockdown that would have gone against the rules set out by himself and his government. Fines were issued to the public that would have amounted up to £10k, so if found guilty of all these misdemeanors Mr. Johnson may be quite a bit poorer as well as out of a job.
For the pound traders, the rout in Cable seems to have come to a level of value/balance/ support. Or maybe it was just a quiet market today and we’ll get further declines on Thursday with the Bank of England. 1.3400 looks like a good level to defend if you’re also trading back to the mean, and if we look left the swing lows within the descending channel show this level has acted as support and so traders may still be interested in buying here again. Turmoil in No.10 would possibly see a decline in the pound but that would happen if there was no clear replacement and a load of uncertainty. For now, Mr. Johnson is acting out his role and is also pushing for some unfilled manifesto promises, a change of heart in the sacking of the unvaccinated NHS staff, and some tougher sanctions on Russia.