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Mitul Kotecha: Politics and the FX markets

Written by Mitul Kotecha Monday, 18 February 2013 13:02
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The start of the week will be relatively muted due to the US President’s Day holiday although Chinese markets will reopen following the New Year holidays giving a little more impetus to Asian markets.

 

The main event over the weekend was the G20 meeting. Ultimately it did not target Japanese FX policy, but instead the statement pledged not to “target our exchange rates for competitive purposes”. European Central Bank President Draghi may utter no more than this sentiment on the EUR exchange rate during his dialogue with the European Parliament today.

 

The lack of specificity will mean that the G20 statement will allow further unobstructed JPY weakness in the months ahead. In the near term markets will probe further downside in the JPY although we suspect that profit taking on long USD/JPY and EUR/JPY positions will restrict further downside potential. Expect plenty of resistance on any break above USD/JPY 94.00.

 

Attention will now turn to political events, in particular the looming elections in Italy (24th) and the formulation of a bailout for Cyprus in the wake of elections there. In the US the looming sequester may prompt some nervousness for markets over the coming days given the approaching deadline.

 

Data releases this week will be a little more encouraging following the recent plethora of data revealing a global softening in activity towards the end to 2012. In Europe gains in the German ZEW and IFO investor and business sentiment surveys will bode well for the region although the rest of the Eurozone will not look as upbeat as Germany. Despite the likely firmer German data expected over coming days EUR/USD is likely to remain restrained ahead of Italian elections, with strong resistance seen around 1.3462.

 

In the US there will likely be little new in the Fed’s FOMC minutes, with no new signal that the Fed is about to shift its policy stance despite a few nervous FOMC members. US Housing indicators will look a little softer but will not detract from the improving trend in housing activity currently underway. Meanwhile, relatively well behaved CPI and PPI inflation releases will pass reasonably quietly, provoking little nervousness in interest rate markets.

 

Finally in the UK the Bank of England MPC minutes will show a unanimous decision on policy settings. Unfortunately this will give little to help to GBP although it increasingly looks as though EUR/GBP is topping out even if GBP/USD looks vulnerable to further slippage.

 

Mitul is the author of ''Chronology of a Crisis'' 

About Mitul Kotecha

Mitul_KOTECHA

 

I have worked in the financial industry as a strategist/economist for over 18-years in several corporate and investment banks in London.   I have covered a range of financial products including bonds, interest rates, equities and foreign exchange. 

 

I am currently working in Hong Kong for Crédit Agricole Corporate & Investment Bank, where I am the head of global currency strategy, in charge of a team of analysts providing research and strategy for the bank’s clients and internal trading and sales teams.

 

I hold an honours degree in economics and a masters degree in economics and finance and have developed a comprehensive knowledge of economic and financial theory during my studies and in my employment.  

 

I am regularly consulted by the press/media for my views on markets and economies appearing regularly on business channels such as CNBC, Bloomberg TV, Channel News Asia, and Reuters TV.  I am also regularly quoted in various newspapers including the Financial Times and Wall St. Journal as well as various newswires including Reuters, Bloomberg, Associated Press, Dow Jones and many others.

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