The increase of oil prices could pose a threat to employment. However, the Fed should stay on hold for now, although a new set of quantitative easing is an option longer-term.
With one million new jobs in just five months, the U.S. economy is moving away from the bottom and targeting pre-recessionary highs. Will it last? Long-term cycles show the unemployment rate could decline further during the coming months. However, the trend is bullish and it might rise again for a final wave. In effect, good news is predominant for now. In February, the non-manufacturing index rose to 57.3, the highest level since February 2011. The Federal Reserve should remain on hold, despite crude oil increasing. Nonetheless, a third set of quantitative easing is still possible, if the still fragile economy fails to gain momentum and the unemployment rate starts to rise again. Mr. Bernanke clearly said a rise in energy prices will pose more threat to the labor market than on inflation.
Europe: growth returns on focus.
As expected, the European Central Bank left rates unchanged at 1.00% last week. President Draghi said the institution was satisfied with the results of the LTRO, although more time might be necessary to evaluate the full impact of such liquidity. Mr. Draghi sees the economy stabilizing. However, the ECB could use different kind of measures (QE), if the debt crisis would intensify in the future again. At this moment, a deep depreciation of the euro is possible, if European banks will use the program to invest overseas. Nonetheless, this scenario appears improbable. After the decline in bank lending in December (euro 3 billion), loans to households increased to euro 14 billion in January. Technically, eur/usd could decline to 1.29/1.26 short-term. The market is below the 50 days MA and there is a divergence between price and the RSI indicator.
Angelo Airaghi, www. ProfitsOn.com
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