Producer prices remain under control in Europe, the latest figures from Germany showing a rise of just +0.2% MoM and +1.5% YoY in September. These compare with higher forecasts of +0.4% and +1.8% respectively. Intermediate goods prices were up 3.3% YoY while adjusted for oil products the index saw a rise of just +1.2% YoY. Good news for the ECB but they will never-the-less be eying the level of crude oil and the unfavorable basing effects over the coming months which will still keep the CB on a hawkish bias.
The following economic releases are due today:
August
Italian Industrial Orders (MoM) +0.4%
Italian Industrial Orders (YoY) +6.7%
Italian Industrial Sales (MoM) +1.5%
Italian Industrial Sales (YoY) +6.7%
Italian Trade Balance (Total) EUR -600mn
Italian Trade Balance (EU) EUR 375mn Q3
U.K. GDP (QoQ) +0.7%
U.K. GDP (YoY) +3.1%
And at long last its G7 day today and this farce will soon be over.
Already the market has decided there is little they can say or do to control FX rates without re-introducing draconian exchange controls or even fixed exchange rates. They have no intention of doing either after years of deregulation and opening of markets. Concerted intervention was tried in the 1980’s and failed. Even the officials within the ECB can come to an agreement over whether the Euro is over valued or whether they particularly care at this moment. The European trade balance has recorded a record surplus this year, growth is at its highest and the community is wealthy. So what is all this morbid fascination with exchange rates? So they want to avoid high volatility because it’s bad for growth. Well, I did a small bit of simple research by looking at the annual ranges from 1982 through to 2006. Of course I couldn’t take measure the Euro since it didn’t come into existence until 1999 and synthetic data in our charts cannot be relied upon for accuracy. However, I took two major currencies which have been traded throughout this period, Dollar-Yen and Dollar-Swiss. The results didn’t surprise me: Dollar-Yen Dollar-Swiss
Average Annual Range 1982 – 1998 19.44% 21.55%
Average Annual Range 1999 – 2006 14.83% 16.32% It’s probably over simple, but the fact is that annual ranges have reduced by around 5% in both cases. Central bankers should be satisfied… What is more, there are three distinct markets which impact on monetary policies, exchange rates, interest rates and equity markets. Very clearly FX is last in the list of priorities as having the least impact on national monetary and fiscal policies. Conclusion? G7 can only play lip service but actual action will not be forthcoming. The Dollar may well consolidate today but it will be sold next week – except against the Yen where all this furor has merely provided better levels to re-enter carry trades. Next Monday is the beginning of te rest of the year…
Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 116.22-45 1.4383-99 1.1770-00 2.0550-93
Res: 115.30-80 1.4309-21 1.1706-51 2.0490-12 Spt: 114.62-80 1.4226-50 1.1650-72 2.0396-19
Spt: 113.84-98 1.4180-06 1.1584-01 2.0285-07 | 
