Mark Whistler is the founder of www.WallStreetRockStar.com and is the author of multiple books on trading. Mark's newest book, The Swing Trader's Bible - co-authored with CNBC/Fox News regular guest Matt McCall - will be on shelves in late summer, 2008. In addition, Mark also writes regularly for TraderDaily.com and Investopedia.com.
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1. OPEC President Says No Production Increase
The News
On Sunday, OPEC President Chakib Khelil told reporters OPEC would not raise cartel oil production.
The Breakdown
Last week, oil fired above $117 a barrel, but then retreated some of the ground. At present, crude is sitting just below the all time high and continues to threaten another breakout higher.
News from OPEC's President will certainly give bulls reason to attempt another move higher, though strength from the greenback could hamper the price of oil long term. Reuters reported Khelil as stating, "The decline in the dollar is having a direct impact on oil prices... When the dollar is declining by 1 percent, the oil prices will increase by about 4 dollars."
The Bottom Line
If the U.S. dollar were to stage a longer-term reversal, it would help cool the price of oil. However, given that inflation is becoming even more of a huge problem in Europe, dollar bears may still have another episode left in the declining dollar season.
2. ECB Rate Hike Coming? Maybe.
The News
On Saturday, ECB Member Axel Weber commented that the ECB may actually need to raise rates, should inflation continue growing.
The Breakdown
In the present environment, one thing is certain, when central bank policymakers talk, Forex markets listen. Almost all comments from ECB members of late, have triggered large moves within the EUR/USD, as traders scramble to figure out whether a reversal in the U.S. dollar will appear, or whether the greenback is about to fall - even more - out of bed.
Specifically, on Saturday Reuters reported Weber as saying, "I am concerned that, with regard to the conduct of wage and fiscal policy, the recent temporary heightened inflation rate could be consolidated for longer than is necessary above the tolerance level of the Euro-system."
Last week, the Euro Zone CPI report showed inflation at 3.6% year over year in March, far above the ECB's tolerance target of 2.0%.
More guidance will come from the ECB Monetary Aggregate report on Friday, with the market expecting M3 to grow 11.1%. However, with OPEC just stating that it will not cut production, the burden of easing inflation by taking some of the wind out of energy commodity prices is beginning to fall on the shoulders of the U.S.
The Bottom Line
A reversal in the U.S. dollar would help bring the price of oil down; however, given Weber's comments over the weekend (and the inflationary problem overall), the euro could still TKO over-zealous dollar bulls in the capitulatory round.
3. Bank of England Swap Saves Pound
The News
The Bank of England announced details of a $100 billion plan to starve off the credit squeeze and restore strength to the UK banking system.
The Breakdown
The main crux behind the Bank of England's plan is to allow banks to swap subprime mortgage debt for Government bonds, thus easing liquidity within the system. The plan commences today, and will stay open for one year, though it may be renewed for up to three years, according to the BBC.
Overall the move provides strength to the pound, as investors infer banks will be able to swap out their risky mortgage-backed securities.
The Bottom Line
The Bank of England's announcement gave euro bulls reason to show during Sunday night and Monday morning trading. At the end of the day, the news indicates the UK housing markets are in trouble and pound could have more downside left.
