With non farm payroll out of the way this week the focus is back on interest rates (Japan, UK and eurozone) and the “r” word. Back in the dark days of the 70s (possibly the uncoolest decade ever with dodgy clothes and even dodgier haircuts!) it was also a time of sharply rising prices, inflation and precious metal prices soaring to new highs. Jimmy Carter was President and when the late Alfred Kahn his chief economic advisor used the “r” word in one of his discussions with the press he was sharply reprimanded. In one of his subsequent meetings Mr Kahn acknowledged the error of his ways by promising never to use the word recession. Instead he chose to use the word “banana” and concluded his comments to the press with a rendition of “Yes, we have no bananas, we have no bananas today!” The reason for this story? Other than its amusement value the same could be said of today - ignore the “r” word and it will go away and perhaps never happen.
In the forex market it is euro which looks ready to deliver a decisive verdict one way or another as the daily chart on the eur/usd looks to form a classic pennant (excellent for a straddle trade). Meanwhile Sentix investor confidence data out of eurozone today showed a significant increase. This indicator measures confidence towards the eurozone economy. A rising trend usually has a positive trend on the nation’s currency because it suggests that funds are more likely to invest in European securities, which tends to strengthen the economy. Weekly and monthly charts also seem to point to a further rise in the euro.
Earlier this year (28th Feb to be exact) Hans Werner Sinn head of the German IFO economic research think tank confidently stated that the euro would only become a problem for the German economy if it rose above 1.60. Given that this rate is fast approaching we shall see what happens later this week. Perhaps someone should remind Mr Sinn that what is appropriate for the German economy may not be so clever for the rest of the eurozone!
Leave a Reply