Rate Decision and Economy

The BoE rarely change rates in December.

The ECB shortly afterwards decided to leave it's rate unchanged.

The BoE and ECB are Europe's top two central banks and the split decision is likely to result in volatilty and we could be taken on a pulsating roller coaster ride over the next few weeks or even months.

City analysts are now advising not to buy Euro above $1.46 and the GBPUSD downside has increased with expectations of $1.98-$2.00 figures. Historically the GBPUSD gains strength during December but also historically we do not get rate cuts this month so we could assume this may not turn out to be a typical December. One of my systems is on the cusp of a sell signal for the Euro but I think it will be determined by NFP today.

The market chatter and wide expectation was for the BoE to cut rates, it is very unusual for this to take place in December. So why did the BoE cut the base rate to 5.5% down by a quarter point?

The answer could be within the following factors.

1. British housing market could possibly be more vulnerable than our US counterparts.

2. British banks are in more danger than the US.

3. The economic structure in Britain is less stable than the US.

4. Lastly, the Federal Reserve has been quicker to react to the credit crunch than the BoE.

Any or all of the above factors could have been the reason behind this.

With th GBP possibly weakening we may see carry trades unwinding so if interest differential is your basis of trading, I would be extra cautious.

Now I dont want to sound all doom and gloom that the world economy is crumbling and we are heading for a universal recession. Far from it. This is possibly one of the best times to be trading. Did you know that the richest 1% in Britain hold more than 25% on the household wealth? Take a trip down to the city and you can just feel the abundance of money passing around. Vince, a friend of mine from Denver always comments on how many supercars are in London around every corner. London hosts the worlds premier financial markets. Getting back to the economy, this is one of the best times to be trading. While everyone around you may soon be complaining about the interest rates, expenses or general lack of wage, you could have a permanent hidden smile on your face by accruing big incomes from the markets. There are some excellent ways to do this and if you are interested and enjoy trading then take full advantage of the times ahead.

We have NFP today so no positions have been opened ahead of that. The expectations are split so whatever the result, many will have major losses today. Add that to yesterdays news and we could see some heavy volatility. Today really is not a day I choose to trade.

I was stopped out on my USDCAD for no loss yesterday.

Have a good weekend. The week has come to an end so we will be back on Monday with a chart analysis.

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Forex Team Anne Chapman & Javid Shaik