Major Market Mover: ECB Rate Decision

Daily Forex Fundamentals | Written by Crown Forex | Jan 15 09 08:15 GMT |

The world's largest economy lived through the worst holiday season ever with their Retail Sales sinking heavily as the economy is immersing in a deeper recession, resulting from the continuous job terminations which took place in the preceding year reaching to 2.59 million workers which reduced the total household incomes. Turbulence in the United States is not over yet, the materialization of the Credit Crisis on various sectors of the economy which are falling one after the other will continue to augment fears, threatening the world stability. Fears of fourth quarter earnings retrieved after retail sales reading fell to more than markets anticipated, the US indices closed in the red zone to widen the losses since the beginning of the year; the Dow Jones industrial average fell 2.94% or 248.42 points reaching 8200.14 levels reaching to a total loss of 6.57% since the beginning of the year, S&P 500 fell 3.35% or 29.17 points reaching 842.62 halting the index with 6.71% losses and NASDAQ fell 3.67% or 56.82 points reaching 1489.64 levels. Attention of markets is headed today toward the European Central Bank rate decision, because markets still question a rate cut according to the speeches released by banks Chairman Trichet in various occasions, that they need to see the effect of the past three rate cuts before deciding more rates cuts. But according to the data released in the past month a rate cut is needed, the Zone faced severe contraction in the Production levels as we saw yesterday a fall in industrial production in November, this is due to the contracted world global demand on the European goods which resulted in stalling the manufacturing sector for more than six consecutive months in a row. A total of 175 basis points the ECB reduced since the Credit Crisis intensified; the first rate cut took place in October which was collaboration with the joint committee created between six central banks. The second rate cut took place in November which was justified by the increasing downside risks to growth pushing the zone in the first recession since the Euro was established. The third rate cut took place in December taking interest rates to the current levels at 2.50% also in attempt to prop up growth just to snatch the economy out of the current recession, which might deepen because economies across the globe continue to tumble. So today markets project a 50 basis points reduction in the zone's benchmark taking it down to 2.0% the lowest since the zone was launched. The path is clearly open for Trichet and his committee to slash rates after the Zone's consumer prices plunged heavily to 2.1% in November with expectations that prices might continue its free fall in December to reach 1.6% falling 0.1% on the month. The falling crude prices from the unprecedented levels which were recorded at $147.28 per barrel in July to close at $41.61 per barrel in December along with the falling economic activity had contributed easing down the elevated consumer prices. But crude prices fall did not stop where yesterday's oil prices reached a low of $35.52 per barrel opening today at $37.37 per barrel continue falling to the current levels at $36.32 per barrel. Economies across the globe are fearing deflation as the crude prices and the economic demand weaken; the United States and the United Kingdom clearly said that they will be using methods just to fight any expectations of deflation, where both Central banks' Chairmen are adopting the method of reducing their rates down to Zero along with using some other unorthodox methods. But till now Trichet resist admitting that they will be heading to Zero interest rates saying in his last press conference after reducing rates in December that the zone is in a state of disinflation and the Central Bank is not worried about deflation because the fall in consumer price was due to the dramatic fall in crude prices. Moving across the oceans into the North American continent we have various data from the inflation and the job sectors; we will start with the Producer Prices, expectations clearly show that prices fell 2.0% on the month and 1.1% on the year, but the core producer prices inclined 0.1% and the yearly core prices rose to 4.1% from the previous 4.2%. Also our calendar contains the Empire manufacturing which is a gauge of assessing business conditions, expectations show that conditions improved slightly in January to -25.0 from the previous -25.76; also we've got the Philadelphia feds with projections that it would be falling to -35.0 in January from the previous -32.9 from the previous -36.1. Dear readers lets just wait to see what today's fundamentals reveal to us, what would Trichet comment on the current situations the zone is living through. 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