Ralph Shell @ 3:27 PM, Monday February 28 2011
This morning it was reported that the Euro CPI y/y was up 2.3% above the 2% target. The core rate increase was a subdued 1.1% y/y, a nice number but not nearly as important as the higher CPI. Yes, the 2.3% increase was a clarion call for the European Bankers to suit up into their battle gear, and get ready to fight inflation. Never mind that food and oil price increases, something beyond the control of the bankers was the cause, these pugnacious bankers were getting ready for battle.
This attitude combined with pending Bernanke testimony, first the US Senate, and then the House gave the euro energy to assault the previous high above the 1.3850 area. For Fed Chairman Bernanke, only the core inflation rate is important, and he considers job creation is one of his mandates. With a plethora of US job reports coming later this week, this is bound to keep the market moving.
The Non Farm Payroll report often gives us an off the wall surprise, and the recent sharp reduction in US employment rates has been a surprise. The unemployment rates have decreased only because the size of the US work force has diminished. How much longer will this continue?
The US unemployment problem is one that extends well beyond mandates to the Fed. In a Financial Times FT.com article 3M chief warns Obama over business regulation they reported:
"
The
head of one of the US’s biggest industrial groups has launched a
scathing attack on Barack
Obama’s attempts to repair relations with companies, dubbing him
“anti-business”.
Manufacturers could shift production out of the
US to Canada or Mexico as a result, warned George Buckley, chief
executive and chairman of 3M...........(continuing)
Mr
Buckley, who has run the diversified manufacturer since 2005, said:
“There is a sense among companies that this is a difficult place to do
business. It is about regulation, taxation, seemingly anti-business
policies in Washington, attitudes towards science.”
He added:
“Politicians forget that business has choice. We’re not indentured
servants and we will do business where it’s good and friendly. If it’s
hostile, incrementally, things will slip away. We’ve got a real choice
between manufacturing in Canada and Mexico – which tend to be
pro-business – or America.”
We doubt that the Fed Chairman will comment on these issues Tuesday and Wednesday but the attitude that the current administration is hostile to US business is a problem. Later in the week there will be Euro fundamental reports Thursday leading up to an ECB Press Conference at 8:30am NY Time. This will then be followed by the NFP report on Friday.
We have lots of numbers to digest and trade. The euro is loaded with spec longs, but they have the money, and the market acts like it wants to work higher. We are inclined to scalp the long side of the euro on weakness in the 1.3725 area. If able to enter at that level, the risk is probably not more than 50 pips. Should the market be able to spend some time above the 1.38+ level, a return to 1.40 looks like a possibility.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.