Archived IMT (2011.03.07)

Markets debate on whether OPEC will raise output to stem oil prices (partial OPEC hike more likely), politicians debate on whether the UN should draft a resolution to remove Qaddafi by force (unlikely), while FX markets debate whether the ECB will raise rates next month. ----------- The positive euro impact of higher oil must not be underestimated as players may tend to place too much emphasis on the ECB. One aspect the ECB will pay attention to is whether the Bank of England will raise rates this week (unlikely) as UK inflation nearly double that of Eurozone. The the ECB has NEVER delivered a one-and-done rate hike since its creation, could we expect it to make an exception this time and raise rates to 1.25% and staying put for the rest of the year. ------------ Those who argue the ECB must do more than one rate hike ought to take into consideration the latest downgrades of Spain and Fitch as well as the possibility of a Portuguese bailout as Portuguese 10-year bond yields stand above 7% for the 22nd straight day (an occurrence which triggered the bailout of Greece and Ireland). ---------------- With the longer-term trendine resistance at $1.4320s, EUR has more upside against USD as well as AUD (1.41) and NZD (1.93). This is NOT to say that $1.4320 is a done-deal, but the oil and ECB factors provide room for EURUSD to test $1.4140s in the interim well ahead of next months ECB meeting. AUDUSD trades the range at 1.0190-1.01, with possibility of seeing 1.0070 ahead of Aussie jobs.