Sterling still looks fragile.
I cannot decide if it is me, or the pound, that is having an “Emperor’s New Clothes moment”. I suppose only time will tell.
Was there a large amount of pressure building as traders awaited the agreement of the Brexit deal, or have the issues simply been kicked down the road and Sterling is “riding for a fall”?
So far this week Sterling has been the star of the show and today’s MPC meeting is unlikely to do anything other than add further positivity.
However, experience shows us that the foundations behind Sterling rallies tend to be a little tenuous. The rally has seen eleven daily higher closes in the past fourteen,. It remains to be seen how far that run can be extended.
It is true that the rise in wage inflation that was reported yesterday was a major surprise and the pace with which the gap between prices and incomes has closed probably warrants a rise in rates in May in the new spirit of proactivity that pervades both the MPC and Fed.
The next major resistance level for Sterling is around 1.4350/60, the post-referendum high. That level could easily be tested, but it will take a major positive influence for it to break that level conclusively.
Powell confirms market’s impression
Jay Powell, the new Chairman of the Federal Reserve fell short of the level of proactivity that the market had been hoping for yesterday as he confirmed the rate hike that the markets had totally discounted but also displayed his more dovish tendencies.
The Fed is planning to hike rates twice more in 2018 and three times in 2019. It is hard to imagine that a three-hike policy for 2019 is any more than a sop to the market as there is so much water going to pass under the bridge between now and then, particularly with this President!
Two further hikes this year disappointed the market and the dollar index reacted accordingly. A certain amount of buy the rumour sell the fact also came into play but it is easy to see why the Fed opted for a more dovish view given the questions over the source and direction of inflation, not just in the U.S. but in most G7 economies.
It will be interesting to see how wage inflation performs in March when the data is released on April 6th. If the January number which started the four hike rumours is proven to be an anomaly, then the dollar could suffer more as the two remaining hikes for 2018 are kicked further down the road.
Bitcoin building a base.
I don’t normally delve into the world of cryptocurrency too much given that there is often little for me to hang my “macro strategist hat” upon.
Having seen first-hand at FxCuffs, the amount of interest cryptocurrencies in general and Bitcoin, in particular, generates, I will start to add a few comments here and there as I see something that I believe to be significant.
Two things strike me as significant right now.
First, is that I can see Bitcoin building a base that should allow prospective investors to become more confident that it isn’t about to collapse further. It seems that $8k has become the point at which buying interest emerges and could be considered pivotal.
The other item of interest is the disappointing way in which vested interests promote Bitcoin, as it falls to fresh lows. Considering what I have said above that seems counter-intuitive, but this has been going on for some time and highlights a more important issue.
Trading 101 dictates that one the most important issues for new traders is to find a broker that you can both trust and feel comfortable with. If you see countless adverts from a broker extolling the potential profits to be had from trading in cryptocurrencies that is possibly someone to be avoided. Also, crypto’s don’t yet behave in the manner of FIAT currencies so they can seriously damage a newcomer’s confidence.
