Trichet Holds His Hawkish Tone Despite Deteriorating Fundamentals

The deteriorating outlook for the Europe’s largest economy has certainly raised expectation that the ECB will ease policy further throughout the next year as price pressures alleviate. However, hawkish comments from President Trichet has cast some doubt on further easing.






















Fundamental Headlines

• Toyota Delays Mississippi Prius Factory Amid Slump – Wall Street Journal

• Energy-Reserve Revisions - Wall Street Journal

• German stimulus offers job promise – Financial Times

• U.S. May Give Car Czar Power to Force Bankruptcy – Bloomberg

• HSBC May Raise $14 Billion in Capital on Rising Bad Loan Risk – Bloomberg

• EURUSD – Service-based activity in Euro-Zone contracted for the seventh consecutive month in December as the advanced PMI reading slipped to 42.0 from 42.5. In addition, the manufacturing PMI dropped to 34.5 from 35.6, and led the PMI composite to reach its lowest level since recordkeeping began in 1998 as the index slipped to 38.3 from 38.9 in the previous month. A deeper look into the report showed that new orders declined to 27.4 from 28.8, while the employment component weakened to 39.1 from 41.0. The latter suggests the acceleration in the pace of job cuts, which will add to growth concerns and weigh on consumption trends. Both the manufacturing and services readings were firmly below the 50 boom/bust level which supports expectations of another quarter of negative growtrh. The deteriorating outlook for the Europe’s largest economy has certainly raised expectation that the ECB will ease policy further throughout the next year as price pressures alleviate. However, hawkish comments from President Trichet has cast some doubt on further easing. Discuss the topic and your trade ideas in the EUR/USD Forum.

• GBPUSD – The annual rate of inflation in U.K. fell to the lowest level since June but exceeded economists forecasts. The headline reading slipped to 4.1% from 4.5% in October, but failed top meet ex[ectations of 3.9%. In addition, the core measure of inflation edged up to 2.0% year-over-year from 1.9% in the month prior, highlighting that some stickiness is still apparent in the market despite the rapid cool down of the economy. However, retail prices came in weaker than expected, with the RPI decelerating to 3.0% from 4.2%. The increasingly dire outlook for the domestic and global economy will further dampen inflation expaectations, which have led market participants to raise their bets that the BoE will continue their current easing policy. Discuss the topic and your trade ideas in the GBP/USD Forum.






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