EUR/usd
draghi, the head of the European Central Bank, decided not to change the policy. At the ECB's regular meeting it was decided to keep the main refinancing rate at 1%. Apparently, the reason was that the economy is mainly going in line with the preceding forecasts. We remind that these forecasts promised “a mild recession”. The possible deterrent is the fact that the previous easing in November and December and the inflation rate exceeding its target level of “just below 2%” haven't taken a full effect yet. It's remarkable how energetic Draghi was, urging politicians to engage in immediate resolving of the debt crisis to maintain confidence in the banking and financial system. Draghi's speech supported the single currency, which was declining in the period between the decision on the rate and the press conference. The euro rose to 1.2840 by the end of the day, although it had started the day near 1.27. It is quite a good result that supported traders' trust in the euro and allowed for a slight technical correction in the heavily oversold euro. It's worth mentioning that stock markets did not stay aside either. Their growth led to the demand for carry trades and for USD sales across the board, which now enables the euro to stay at 1.2840, at the top of the downward corridor. The stock markets can be characterized by a moderate optimism as they are still ignoring the Fed's cautious statements on prospects for the economic development. Some prominent analysts like Edwards of SocGen are predicting a possible recession in the US. Be careful as from year to year markets are optimistic in winter, restless in spring, and on the verge of becoming panic-stricken in summer going on autumn.
GBP/USD
Yesterday we got further proof of that deterioration in Europe is causing much trouble to Britain. The country's industrial production fell in November by 0.6% m/m and by 3.1% y/y. Manufacturing industries are showing a slighter decline, but it is also rather unpleasant. In November they lost 0.1% and had fallen by 0.3% by November. After a 1% decline in October the situation in the fourth quarter is likely to be rather poor. Later on Thursday NIESR published its estimates of the economic growth in the fourth quarter. They estimated the growth at 0.1% after 0.3%. Taking into account that the official rate of the third-quarter growth was 0.2%, the fourth quarter figures might also be worse, about zero or even less. Having added a weak consumer activity and growing trade deficit (which also reduces GDP) to it, we'll, as a result, get a decline just like a year ago. At that time the ONS put blame for the economic downturn on the cold winter. Will they this time blame warm weather, which has stifled utilities? Against that external background the sterling has reason only for a technical correction against the dollar, but paired with the euro the pound occurs in a rather unfavourable situation.
Stock exchanges are of interest. Despite the players' caution, the euro decline earlier this week, cautious comments of fomc officials, investors somehow manage to make profits on shares day after day. Technically there has even formed a short-term support line on S&P (see the picture). As has been mentioned above, this optimism has supported the single currency and is strengthening the demand for risk-sensitive aussie and Kiwi. Yet overoptimsm is not appropriate here, as the index is already close to the overbought area on the daily charts.
EUR/CHF
As we expected, the Swiss franc keeps enjoying a high demand. Yesterday traders went lower than 1.21 on the EUR/CHF, which was below the 200-day moving average. The cautious selling of the pair is of interest. Is that really true that the market has decided to check if the SNB will keep their word to purchase the unlimited amounts of the currency in order to protect the 1.20level? It should be mentioned here that such a euro buyer as the Swiss National Bank may significantly strengthen the euro against the dollar. So if you believe that the Bank will carry out an intervention, be prepared to buy the EUR/USD on approaching the 1.20 level by the EUR/CHF. In addition, the growth momentum in the euro may cause the short-covering rally in the euro/dollar, where many take short euro positions.
