The markets calmed down a little bit on Martin Luther King day in the US after all that Swiss Franc peg panic that I covered extensively last week. So Now, I think it’s about time to take a look at Ms. USA and how she’s doing during the first month of the year.
The latest Non-Farm Payroll data suggests that Ms. USA has nothing to worry about in this economic aspect. December rates were better than expected with a 252K in hiring. But to everyone’s surprise, Consumer spending was a huge disappointment. Everyone thought that the holiday shopping season and the drop in oil prices will make for cool retail sales report but, nope! The headline figure showed a 0.9% decline instead of the estimated 0.2% uptick.
Now for inflation, we are not surprised that the US economy has reported a decline. The Fed recently mentioned that below-target inflation is one of the reasons why they’re unlikely to hike interest rates early this year.
These all explain Ms. USA’s mixed performance on the forex dance floor at the start of the year, as she dropped Mr. Japanese Yen but went up against commodity currencies and Mr. Euro.
Coming up we are eyeing USD/JPY as it’s consolidating inside the Ichimoku cloud at the 23% Fibonacci level at 117. A confirmation above or below this level could decide the fate of the pair in the second month of 2015.
As for Mr. Aussie, I identified a spinning top reversal candlestick pattern on the AUD/USD daily chart as the pair remains below the Ichimoku cloud and below the pivot point so we could see the pair go back down to our previous bearish target at 0.808.
On the European front, Irish Financial Mininister Michael Noonan has said that QE will only be a success if countries share the risks associated with it, with the ECB being the purchaser of national assets, not individual central banks. Mr Noonan’s argument, rather sensibly, says that having a mutualized currency but not a mutualized risk undermines the monetary union and goes against the last few years of planning to have a more cohesive European banking sector.
In the German press things are a little more heated, with warnings of a tumbling euro if the plan goes ahead. They say a weaker euro would reduce the need for structural reforms and therefore place less emphasis on change. It seems like a done deal though, with Francois Hollande saying that “on Thursday. the ECB will take the decision to buy sovereign debt, which will provide significant liquidity to the European economy and create a movement that is favorable to growth”. Nothing like stealing Mario Draghi’s thunder.
The Telegraph points out that QE programmes don’t just have consequences domestically and that any ECB QE is likely to result in a lot of that money being invested into the UK and the potential for another asset boom here and possibly globally.
Denmark, much like the Swiss, are trying to get ahead of the curve and have cut interest rates to -0.02% in a bid to deter speculators and investors seeking safe haven from over valuing the Krone and making it very expensive for the central bank to maintain its peg against the euro.
The fallout from Switzerland continues, with Poland’s central bank warning that a banking crisis is looming because of the valuation of the Franc shifting from 3.6 to 4.3 Zloty. the massive move is going to mean a lot of home builders, who finance themselves in Swiss denominated loans will struggle to meet the significantly higher cost of credit, which Moody’s are already saying will have negative repercussions on the banking sector.
Now I’d like to hear from you. What’s your trading strategy for the US dollar versus her forex dancing partners? Come on over to our Facebook page or on Invest Diva.com and let me know. Also, If you liked this video, like it and share it with your friends. To get our latest updates subscribe on investdiva.com and follow us on our social media. Invest responsibly and don’t forget that only you can take care of your money the way it needs to be taken care of, so