Category: Daily Look

Looking for FX divergence



Ultimately, what FX markets need is policy divergence between central bank policies of different currencies. We’re not quite there yet, because most of the debate is surrounding QE (ending or starting) and the potential for rate hikes (in the US and UK) more likely in 2015. This will likely remain the case this week as the European Central Bank meets for its policy meeting. The latest numbers on inflation and the perceived change in tone from the head of the ECB last month has increased speculation that we may see further policy action form the ECB. But the options available to them are still limited and in some cases, not fully formed, so from a practical viewpoint, there is still a sense that they are not able to launch the big ‘bazooka’ that many in the market would like to see. The ECB meets on Thursday, with the euro likely to be a little more volatile into the run-up as speculation continues over policy.
For today, we’ve already seen the release of final GDP data for Germany, which has confirmed the 0.2% decline and revealed weakness in both construction and capital investment. The new month has seen sterling catch a bit into the European session, cable moving back above the 1.66 level, something it has not managed to sustain for the previous three sessions. The Bank of England also meets on Thursday of this week, but no action is likely to be seen, with the interest likely to be with the minutes released mid-month. A additional member voting for higher rates would keep alive the potential for an increase in rates this month. Note that today is Labor day in the US, which will keep activity subdued in FX markets.

Further reading:

EUR/USD Sep. 1 – Remains on the floor Ukraine news weighs

The Advantages of Using a PAMM Account

Markets await ECB action

Markets await ECB action

We come to the end of a week that has been mixed for the dollar overall, with loses vs. the CAD, JPY and Aussie, but gains against the euro, kiwi and (marginally) the Swissie. The pressure on the euro has been understandable given the change in tone from the ECB President seen at the end

ECB awaits German inflation data

ECB awaits German inflation data

We are entering the final two days of the month, one which has been positive for the dollar, but some of those gains are being given up into month-end, a trend which could continue over the coming two days. The dollar has given up some ground vs. the Aussie, less so vs. the euro and sterling.

Bonds and yields continue to stir FX markets

Bonds and yields continue to stir FX markets

We are likely to cruise into the end of the week and month end, with the major data releases and events of the month behind us. That said, there are three underlying themes to FX markets that continue to drive the price action. The first is the growing yield differential in favour of the dollar.

The Eurozone fights deflation

The Eurozone fights deflation

There is a growing sense that Europe is pushing against the medicine of austerity as the Eurozone flirts with deflation and also recession. Italy has already set sail on this new course, there were signs Friday that ECB President was softening his stance and the French President is currently assembling a new cabinet as the pressure on his presidency continues. Increased government spending

Diverging Central Banks Trigger Volatility

Diverging Central Banks Trigger Volatility

“More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly”. Woody Allen’s words must have seemed particularly relevant to those gathered at Jackson Hole last week. With the major economies following

Draghi sounds worried

Draghi sounds worried

Things didn’t quite go to plan for the dollar on Friday in the wake of comments from Fed Chair Yellen. The tone of her speech at Jackson Hole was largely as expected, taking a softer stance than the minutes seen earlier in the week, but the dollar was firmer as a response, especially against the

Chair Janet Yellen in the spolight in Jackson Hole

Chair Janet Yellen in the spolight in Jackson Hole

The greenback remains stable as markets shift gears from Wednesday’s hawkish FOMC minutes to a potential dovish Chair Yellen’s speech this morning on the labor market. The latest FOMC minutes have shown that the dovish camp is losing ground and has raised the possibility of a change in view on labor market underutilization and the

Markets await Fed Chair Yellen’s speech

Markets await Fed Chair Yellen’s speech

You could tell that markets were playing a waiting game on Thursday. The dollar gave back some gains, but only partially against the Aussie and the euro. Otherwise, even the better data on housing and sentiment from the US was not sufficient to given the Greenback a further lift. Update: Yellen provides no new message – USD stronger

Forex market favors US dollar

Forex market favors US dollar

A shift is happening in forex markets, one that is favouring the dollar as yields are pushed lower elsewhere and the US creeps towards a time when a rate increase will be more actively considered. More of this was seen overnight with the release of the latest FOMC minutes in the US, the tone of