European markets are trading higher this morning after a wobbly session on Friday which was on the back of the news that Russia will retaliate and fight back when Ukrainian forces attacked Russian military convoy. However, Mr Putin has shown a very cool hea,d and this is despite the weekend events when Ukraine tightened the screws further on separatist forces. I am sure his patience has its limits and Ukraine constantly pressing the buttons could trigger a counter action by Russia which could cause a massive sell off in the markets.
Nevertheless, these geopolitical tensions have taken the back seat today and traders are positioning themselves to big events which are going to take place this week and these fundamentals will drive the direction of the markets this week. The two big events which are going to place are Fed policy meeting and BOE rate decision. But let’s discuss the Fed meeting first. During their last meeting it was clear that there were few members who were in favour of raising the rates and it will be interesting to see how much of that we are going to see this week.
As for the BOE, the inflation report has certainly left a big dent on the expectations that we will see a rate hike during this year. The Bank of England has played that in a very dovish manner during this report however, the comments by Mr Carney over the weekend during which he has confirmed that it is not necessary that the bank have to rely on the wage growth before they increase the interest rate has given the sterling bulls a fresh hope. The GBP/USD pair has been under immense pressure lately due to the odds going lower for an increase in the interest rate this year. But one thing is for sure, that the bank is playing with fire by constantly giving mixed messages which is keeping the markets very jittery and given that Mr carney has earned an unreliable boyfriend tittle, such mix messages are not going to help him.
Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam