Forex Investment and Currency Trading

Incoming data suggest that the Eurozone is currently divided between a resilient North, with Germany and to a lesser extent France still enjoying decent cyclical conditions, and a struggling South, with Italy and Spain drifting into sub-potential growth rates. However, on balance, economic activity in the Eurozone remains sufficiently strong to help the hawks at the ECB to resist calls for rate cuts, at a moment when inflation continues to accelerate.  The probability is raised that the ECB may not cut at all this summer from 35% to 40%.
The hawks within the ECB Governing Council have spent a rewarding week: their [...]

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The USD hovers near record lows versus major currencies, with little prospect for near term improvement. While recent Fed actions may help to stabilize financial system concerns, there are increasing signs of US economic weakening. The Chicago Fed National Activity Index has fallen to levels normally associated with recession, and additional FOMC easing
is likely to push the USD index to new record lows during 2Q 2008.
Residual economic momentum and stubborn headline inflation suggest stable ECB policy through at least the next few months. Strong interest rate support has helped push the EUR TWI (BoE index) to within 1% of its October [...]

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US Markets Today:  Core PCE inflation year-over-year fell to 2.0% in February, helped by revisions to prior data, moderating fears that the Fed is erring in easing policy and risking sharply higher inflation. Nominal consumer spending advanced 0.1% in February, but spending was flat in real terms, suggesting slow real GDP growth in Q1. Personal income rose an above consensus 0.5% due to both a calendar quirk and the BEA’s aggressive assumption that “large bonus payments” added $15bn to February personal income. In its March final reading, University of Michigan Sentiment fell to 69.5, the lowest level in over 16 years. [...]

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While the storm is raging in financial markets and the US economy teeters on the brink of recession, the European Central Bank is keeping its nerves.
Neither the further Fed rate cut to a mere 2.25% nor the surge in the euro exchange rate to a new lifetime high versus the US dollar has triggered any appreciable shift in the ECB position yet. The ECB is firmly on hold for the
foreseeable future. At least that is the clear message in almost all ECB communications at the moment.
Although a few cracks in the strong ECB posture may be starting to appear, these [...]

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