euro to be trading sideways

Foreign Exchange Currency Outlook : CPI is always an important number but never more so than today. Foreign Exchange Traders think that if inflation is high, consumers will be discouraged even more (having spent their stimulus checks) and if employment falls further, with jobs “hard to get,” contracting consumption will create the recession that so far refuses to appear. This is just scenario-building. We can build other stories in which falling inflation (only 0.4% in July, as forecast, against 1.1% in June) relieves pressure on the stagflation theory. In other words, growth counts, too.

Having bought into the correction theory, we are a little surprised at the weak tone of the euro. It’s not rising as the charts indicated it “should,” but at the same time, it’s not resuming the decline on bad GDP numbers, either. Actually ,we think the ECB’s intransigence is more noteworthy than the actual data. It is sticking to its anti-inflation rhetoric come hell or high water. Well, it’s getting high water right now and over the next 6 months, and should be punished by the market for failing to acknowledge that growth counts, too. And yet over the entire history of the ECB, the market mostly gives the ECB a pass for not adopting growth as a priority, only inflation.

It’s not normal for the euro to be trading sideways in such a narrow range. We have to expect a breakout—but right now it’s a 50-50 toss-up which way it will be.

Either direction is equally defensible.

Stay tuned.

Bye For Now

Barbara Rockefeller

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