EUR/USD, GBP/USD Holding Ahead Of CB Announcements March 4, 2015
EUR/USD, GBP/USD Holding Respective Ranges, Central Bank Announcements Tomorrow
I have to admit I understand any weariness to push the Euro or Pound before Super Mario or House Bubble Carney take center stage tomorrow but I can also say that I dont see much reason to expect anything different than the latest rhetoric coming from them. The ECB is at their wits end and starting to full retard as I type this but they may have a little problem that has potential to throw them under the bus. From what I have seen there arent many banks that really want to sell their bonds to the ECB. This is from Reuters a couple weeks ago.
That may complicate implementation of the quantitative easing program, aimed at reviving growth and inflation in the euro zone. The ECB might have to pay way above market prices, or take additional measures to encourage investors to sell.
“We prefer to hold on to them,” said Antoine Lissowski, deputy CEO at French insurer CNP Assurances. “The ECB’s policy … is reaching its limits now.”
Banks, which buy mainly short-term bonds, use government debt as a liquidity buffer. Selling would force them to invest in other assets, for which — unlike government bonds — regulators ask banks to set cash aside as a precaution. Alternatively, they can deposit money with the ECB, at a discouraging interest rate of minus 0.20 percent.
Insurers and pension funds typically buy long-term debt. They could make hefty profits selling to the ECB. But the money would have to be re-invested in other bonds whose yields would be much lower than their long-term commitments to clients — a regulatory no-no.
“If we were to sell bonds, we would make huge capital gains, but we will then have to reinvest that money at a yield of 0.5 percent, set against liabilities at 3.50-3.75 (percent),” said Bart de Smet, the CEO of Belgian insurer Ageas.
Dutch banks ING and Rabobank, Spain’s Bankinter and rescued lender Bankia and France’s BNP Paribas said they were unlikely to sell when the ECB comes knocking.
“The volume of sovereign bonds we own at the moment is not linked to monetary policy,” BNP Paribas deputy CEO Philippe Bordenave said. “It’s linked to the regulation.”
But everything has a price. RBS strategists see a 40 percent chance that ECB purchases would help turn German 10-year Bund yields negative this year.
“There’s a lack of bonds to meet current demand globally, so it’s going to be difficult to see a lot of sellers,” said Patrick O’Donnell, portfolio manager at Aberdeen Asset Management, who does not plan to sell. “The risk is that if the ECB is serious about buying at the rate of 60 billion a month, the price impact could be quite material.”
Maybe Super Mario has already been given his dose of kryptonite?
EUR/USD Still Range Bound
Not much has changed on the EUR/USD today other than the addition of another potential shorting level. However with the range tightening up it will carry some extra risk to take from 1.1212 considering the potential to run stops above 1.1236. Otherwise I am still open for the long at 1.1159 although the lower highs do suggest again that the probability of a break down is higher.
GBP/USD Holds Back On Second Push
Today I will still have a smaller bias for the short on the GBP/USD but the probability has gotten less and with the BOE announcement tomorrow it may not go much of anywhere today. Since Carney didnt do much threatening of rate hikes in his speech yesterday I have my doubts there will be much of that tomorrow either. At this point it seems as though they really dont believe the BOE can raise rates but that dont mean there wont be spikes on further rhetoric. The levels have slightly changed with 1.5391 being a good place to short but pushing up to 1.5423 is still possible. Otherwise I will be more open for the long from 1.5350 today as well.
EUR/JPY Rejects Back To Friday Range
With the EUR/JPY rejecting the first push it does increase the probability for the break down today but its best to remain open on direction going back into Fridays range. We do have some weaker conviction below yesterday lows this morning so a test down to 133.52 is probable but the distance to the lows isnt worth the risk if it cant pull higher before the test. It would be much better bto see the pullback to the Asian highs befor setting up this morning. The best level for the short is up at 133.95 but if they can test lower to widen the Asian range then they may only push to 133.84 during London. Otherwise I will be open for the long at 133.52 but will need more than one trap to take it considering the conviction.
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Forex News Today
The calendar starts with a slew of European Services PMI data but with only slight moves expected I doubt there will be any sustained move baring a big miss on the German or Euro Zone data. The UK also has its Services PMI release and will have a better chance for movement on a larger miss. Its expected to rise a couple points so a disappointment should have a bigger effect.
The US has ADP Non Farm data expected to increase to 220K which is still rather low compared to new lay offs coming in. I dont expect much unless it misses big. Later they have ISM Non Manufacturing PMI as well expected to drop slightly. There is also Fed member Fisher speaking late in the NY session but if Yellen dont push things around this morning than I doubt he will either.
Asian session traders have Aussie Retail Sales to watch out for tomorrow
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