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BoE kept Rates at 5.25%

Thu, Feb 8 2007, 13:12 GMT
by Johan Ditz Lemche

Saxo Bank

Rumours in the market that the BoE would hike was dismissed as the rates were unchanged. GBPUSD has lost 70 pips since the announcement. Watch the ECB rates at 12:45 GMT and Trichet afterwards.

MAJOR HEADLINES – PREVIOUS SESSION

GBP

GBPUSD dropped almost a figure after the BoE decided to keep rates fixed at 5.25%. Ahead of the annoncement, the NIESR had suggested that another hike was needed to curb inflation and keep the accelerating growth in check.  All but eight of 50 economists surveyed by Bloomberg News had predicted the decision. Volatility on options for the U.K. pound climbed to a two-year high versus the yen today on speculation the BOE will surprise investors and raise interest rates for a second straight month.

EUR

Today we also have the rate announcement from the ECB, where focus will be on the following statement as we expect the rates to be unchanged at 3.50%. Again there have been rumours about the reintroduction of the vigilance-term in the statement by Trichet, but we do not see this as very likely. If the term is used, we see it as a certain indicator for a rate increase in March. EURUSD has been trading sideways in the range 1.2900-1.3000 since the middle of January 2007, and the major break-out levels are 1.3480 to the upside and the 1.2870 to the downside.

From Yesterday:

USDJPY/EURJPY

Markets were still very range bound today as data was light and the G7 meeting still concerns the market whether or not the weak JPY will be a topic. The USDJPY rose as the Japanese ministry official expressed that he did not see the JPY as a major topic on the meeting. Previously ECB officials had said otherwise, which is the reason for the choppy trading we have seen in USDJPY. We are still bulls regarding EURJPY, despite the disappointing German Industrial Production figures today, and USDJPY, as we do not see the Bank of Japan raising rates prior to March.  If no statement is made during the G7 meeting concerning the direction of EURJPY then we expect to see the pair trade above 160.00 in the near future. Later today the US Unit Labor Cost and Nonfarm Productivy is released and tonight we have the US Consumer Credit. These figures will have some importance, but only if they surprise the market. From Japan, we have the M2+CD Money Supply and the Broad Liquidity, which both can influence the sentiment in the market regarding the BoJ meeting in February.

FX Orderbook

Note: the support/resistance levels used in the matrix's of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.

Euro/US Dollar

( 1.2986 - 12:43 GMT, Feb 08, 2007 )

Support

1. 1.2980 uper end of 6-month range
2. 1.2765 key support for rising wave lows.
3. 1.2460 daily base support

Resistance:

1. 1.3367 highs from early December.
2. 1.3480 old top from March 2005.
3. 1.3190 Congestion zone through holiday trading.

British Pound/US Dollar

( 1.9605 - 12:43 GMT, Feb 08, 2007 )

Support:

1. 1.9500 January 2005 old top.
2. 1.9190 November's 2006 breakout level.
3. 1.8950 wave lows from late November 2006.

Resistance:

1. 1.9750 Double top from December 2006.
2. 1.9916 highs from 2007.
3. 2.0100 highs from August 1992.

US Dollar/Japanese Yen

( 121.36 - 12:43 GMT, Feb 08, 2007 )

Support:

1. 114.45 wave low from December 2006.
2. 113.35 weekly base support.
3. 109.00 key support form confirmation of a monthly downward trend.

Resistance:

1. 119.90 old top from mid-October.
2. 121.40 old top from December 2005.

Published on  Thu, Feb 8 2007, 13:15 GMT