Monetary policy remains prime driver.
The Pound, Euro and Dollar are unable to break out of their current narrow ranges as the market concentrates on monetary policy changes that, if they happen at all, are a long way down the road.
Yesterday’s inflation data in the Eurozone went a long way to proving that the ECB probably won’t raise interest rates during the rest of Mario Draghi’s tenure. A 1.4% year on year reading is some way short of the ECB’s 2% target and with the month on month falling back to 1% any a short term rises which could precipitate the pre-emptive hike favoured by the Bundesbank are off the table.
In the U.S., tomorrow’s employment report will provide a little short-term excitement to end a dull week but unless wage inflation moves back towards 3% the Fed’s three strike strategy remains the most likely scenario for 2018.
The growing fears of a trade war between China and the U.S. are providing support to the safe haven currencies as tit-for-tat actions could grow into something more serious.
In the UK, next months assumed rate hike will probably be determined by the inflation data that isn’t due to be released for almost two weeks. Sterling has been in an ever-narrowing range in direct correlation with its shrinking number of drivers.
Brexit; Back in the shadows.
Like a werewolf that only appears at full moon to create terror and mayhem, Brexit performing the same function for the FX markets. Its appearance in headlines has become a little rarer than a full moon but the fear of what it could do is never far away.
We are still being held on tenterhooks over the question of the Irish border particularly since there has been a rumour circulating of a deal being struck to ensure the transition deal was passed. If that is the case, then it has been remarkable that there have been no more leaks. If no deal has been agreed then that could be extremely serious for the entire process since it means that one of, if not the, major remaining obstacles still needs to be dealt with.
The final divorce agreement needs to be in place within months to give time for both sides to debate it in the relevant Parliaments/Councils/Commissions before the March 29, 2019 deadline.
Sterling remains hemmed into a very narrow range that has now been tested on several occasions. It is rare for such a situation to remain for any length of time, but traders seem to be content to be reactive on a day to day basis.
Bitcoin struggling to make any ground.
Since the mainstream market is failing to provide much excitement, I have decided to make one of my rare forays into Cryptocurrency.
At the recent FXCuffs it was obvious that trading in Bitcoin and the other mainstream cryptocurrencies is starting rival the more traditional markets. There are obviously always going be concerns for investors when entering into a “less regulated market” but if investors use the same “KYB” (know your broker) rules and risk management techniques there should be little problem.
When considering starting to trade cryptocurrencies there will be few other considerations that could be the difference between success and failure. First; Spread. The spreads still quoted between bid and offer make certain trading styles redundant. Second; Drivers. There is no correlation at all with the mainstream market, no economic data and technical analysis is difficult since the market often moves counter to any expectation.
Bitcoin has been under pressure recently and the initial driver was the banning of crypto advertising first by Facebook and then by Twitter. This was clearly driven by “official” pressure since both platforms see regulation as a war they can’t win, so best comply with Government “requests”
Mark Zuckerberg’s recent comments on regulation of social media could just as well be applied to cryptocurrencies. He said “the question is not whether regulation is needed, that horse has bolted, it is now a question of what kind of regulation.