Interest Rates Driving Euro and British Pound Higher

The surprise this week in the Forex markets isthe inability of the U.S. Dollar to attract fresh investors given theescalating problems in the Middle East and North Africa.With crude oil and gold rising as traders take protection, many traders thoughtthe Greenback would benefit from flight-to-safety buying.

The surprise this week in the Forexmarkets is the inability of the U.S. Dollar to attract fresh investors giventhe escalating problems in the Middle East and North Africa. With crude oil and gold rising as traders take protection,many traders thought the Greenback would benefit from flight-to-safety buying.This has not been the case, however, as traders instead have chosen to focus onthe strengthening economies in the U.K. and the Euro Zone and the threat ofcentral bank interest rate hikes.

In early January a comment fromEuropean Central Bank President Jean-Claude Trichet set off a rally in the Eurowhen he mentioned that the ECB was beginning to look at inflation. Althoughinflation was taken out of the February policy statement, traders areanticipating that the ECB will revive this discussion at its March 3 meeting.

Yesterday the Bank of Englandminutes revealed a 6 -3 vote against hiking interest rates. This vote showed anincrease of two members who preferred to hike rates. Although this doesn’t meanrates will move higher within the next month, it does indicate that economicdata has changed enough that members are beginning to shift their thinkingtoward increasing its benchmark rate earlier this year than previously thought.

So although issues in the MiddleEast and North Africa continue to encouragetraders to shed risky assets, the problems seemed to be contained enough not towarrant a mass move into the U.S. Dollar. Forex traders are using simpleinterest rate differential analysis to make their decisions to move into theEuro and the British Pound. Bond spreads between Germanyand the U.S.are also beginning to reflect this line of thinking.

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For furtherinformation on this and other Pattern, Price & Time products visit ourwebsite at http://patternpricetime.com.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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