According to Danske Bank’s Chief Analyst, Allan von Mehren, the commodity-currencies and the Scandies remain vulnerable heading into the ECB week.
Key Quotes:
“Risk currencies such as the commodity currencies and the Scandies remain fragile entering a week where the ECB risks disappointing if Draghi and co do not forcefully acknowledge a deteriorating outlook.
The continued escalation in trade woes late last week is adding to recent disinflationary factors – and a too strong USD and too tight US monetary policy is a key driver of this globally. As we have argued recently, we need to see Fed blink and acknowledge the dovish market pricing for this trend to reverse.
Today, the market may sell USD on a weak ISM manufacturing print in expectation that it will trigger a dovish shift from the Fed – and in fact it may eventually, as we now expect an insurance cut in H2 and some comfort in soft rhetoric at the mid-June meeting.
This week, the Fed conference on monetary policy strategy, tools and communication may provide some hints; Powell is speaking here on Tuesday.”
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