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The mixed results from the morning initial jobless and continuing claims data proved to be a non-factor with the markets more keenly focused on digesting the fallout from the BOE and ECB rate decisions.
MIDDAY SNAPSHOT & ANALYSIS OF SELECTED RATES
The mixed results from the morning initial jobless and continuing claims data proved to be a non-factor with the markets more keenly focused on digesting the fallout from the BOE and ECB rate decisions. While the actual rate decisions from the respective central banks yielded an as expected result at 0.50% and 1.00%, the more dovish tint accompanying the announcements has forced some broad based profit taking in currencies. Recent polls by Bloomberg and a Shadow MPC report calling for an end to QE from the Bank of England were way off the mark with the Bank of England announcing that not only would they extend the QE programme, but also would double the expected GBP25B addition to GBP50B, taking the total programme to GBP175B. The MPC said that the world economy remained in recession, despite increasing signs that the output in the UK's export market was stabilizing, and that financial markets were still fragile even with noticeable improvements. This weighed tremendously on Sterling across the board, and set the tone for the day. Meanwhile at the ECB press conference, ECB President Trichet noted that interest rates were appropriate and that economic activity was likely to remain weak with high uncertainty despite some signs of stabilization within the economy. Trichet also said that he saw recovery into 2010. Commenting on non-standard monetary policy, Trichet said that these measures would be quickly unwound once the macroeconomic environment improved. The ECB did not discuss whether rates were at their lowest level. On currencies, Trichet continued to stress the importance of a strong USD policy. Also seen weighing on sentiment was the news of the introduction of an anti-manipulation rule for the oil market. The market now looks ahead to Friday's highly anticipated NFP (-328k expected) and unemployment rate (9.6% expected) data.
ANALYSIS OF SELECTED RATES
Usd/Mxn: The peso has been showing some impressive relative strength today even with sentiment and risk appetite damaged, currencies selling off across the board, and commodities faltering. The market is now testing the very well defined range lows over the past several months in the 13.00 area and with daily studies showing oversold, we would recommend looking to buy at current levels, in anticipation of some upside over the coming days and weeks. While the relative strength might be attributable to some favorable developments on the domestic front, and reduction in risk appetite should ultimately weigh on the risk correlated peso.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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