Draghi comments unlock upside path for Euro, Dollar plunges
Hey guys,
Here is my market commentary for today. Feel free to leave your comments!
A host of talking heads shared their views on the outlook of global economy and the pathway of deploying monetary measures in order to achieve stability and keep the economy on the growth track. Investors were geared up for ECB President Mario Draghi's cues since after the rate decision in May it became clear that Draghi has finally spotted the recovery trend in mixed eurozone economy figures.
The last ECB meeting has already made it clear to investors that the risks of deflation have receded and the economy has entered a phase of growth. The policymaker confirmed that "deflationary expectations were replaced by reflationary ones”. This suggests that the ECB has received convincing evidence that monetary injections into the economy were not in vain and had an appreciable effect. Next ECB steps, considering its data-dependence, will ride on the incoming data, as Draghi hinted that inflation figures will play a key role for guiding the bank through policy exit.
The fixed income market began to frantically get rid of the bonds with current yield, as the prospects of tapering off the QE became even clearer. The president of the ECB noted that the bank could begin to reduce the balance of assets before the rate hike, creating a threat of flooding the market with bonds in the near future. German yield on 10-year bonds, especially sensitive to changes in expectations, increased by 53% in less than two days to 0.375% per annum, September Euro Bund futures fell by 1.2%.
The European currency climbed more than 1 percent on Tuesday, as investors are in hurry to take a comfortable position on the euro before the ECB makes a global U-turn in the monetary policy. On Wednesday, the common currency is set to test the level of 1.14, the highest for 13 months. For bears, it becomes increasingly difficult to defend the levels amid hawkish Draghi, so the unimpeded climb of euro looks quite logical. EURUSD did not experience significant resistance at 1.1350, however it will probably feel insecure above 1.14 allowing bears to launch a counterattack. Short positions look reasonable from the range of 1.1420 - 1.1450, but the news on Trump's slipping plans, the speech of Fed’s representative Williams and the data on trade balance can slyly let down the dollar, despite the second-tier significance of these news.
The pacifying speech of Janet Yellen at the event in London that the storm cloud in the form of the crisis of 2007 passed and the horizon looks cloudless allow us to expect more decisive actions from the Fed in pursuing monetary policy. In the futures market there was a preponderance towards the third round of tightening in December (odds for the hike rose to 47%) what additionally speaks in favor of the dollar correction on FOREX market.
A weak dollar on Tuesday made commodities denominated in dollars more attractive to investors, but a bearish report on US stocks from the API crossed the bulls' plans to win back losses. Prices for black gold slightly decreased on Wednesday, and probably will remain depressed amid OPEC's idleness. According to Scott Sheffield, chairman of Pioneer Natural Resources Co., the Permian oil basin stretching from Texas to New Mexico will keep US firms busy for at least 25 years, while production will remain profitable at prices below $30. Nomura analysts are more optimistic about the market, believing that prices have already bottomed out, but “badly damaged market sentiment and rising rig count in the US will dent recovery."
Here is my market commentary for today. Feel free to leave your comments!
A host of talking heads shared their views on the outlook of global economy and the pathway of deploying monetary measures in order to achieve stability and keep the economy on the growth track. Investors were geared up for ECB President Mario Draghi's cues since after the rate decision in May it became clear that Draghi has finally spotted the recovery trend in mixed eurozone economy figures.
The last ECB meeting has already made it clear to investors that the risks of deflation have receded and the economy has entered a phase of growth. The policymaker confirmed that "deflationary expectations were replaced by reflationary ones”. This suggests that the ECB has received convincing evidence that monetary injections into the economy were not in vain and had an appreciable effect. Next ECB steps, considering its data-dependence, will ride on the incoming data, as Draghi hinted that inflation figures will play a key role for guiding the bank through policy exit.
The fixed income market began to frantically get rid of the bonds with current yield, as the prospects of tapering off the QE became even clearer. The president of the ECB noted that the bank could begin to reduce the balance of assets before the rate hike, creating a threat of flooding the market with bonds in the near future. German yield on 10-year bonds, especially sensitive to changes in expectations, increased by 53% in less than two days to 0.375% per annum, September Euro Bund futures fell by 1.2%.
The European currency climbed more than 1 percent on Tuesday, as investors are in hurry to take a comfortable position on the euro before the ECB makes a global U-turn in the monetary policy. On Wednesday, the common currency is set to test the level of 1.14, the highest for 13 months. For bears, it becomes increasingly difficult to defend the levels amid hawkish Draghi, so the unimpeded climb of euro looks quite logical. EURUSD did not experience significant resistance at 1.1350, however it will probably feel insecure above 1.14 allowing bears to launch a counterattack. Short positions look reasonable from the range of 1.1420 - 1.1450, but the news on Trump's slipping plans, the speech of Fed’s representative Williams and the data on trade balance can slyly let down the dollar, despite the second-tier significance of these news.
The pacifying speech of Janet Yellen at the event in London that the storm cloud in the form of the crisis of 2007 passed and the horizon looks cloudless allow us to expect more decisive actions from the Fed in pursuing monetary policy. In the futures market there was a preponderance towards the third round of tightening in December (odds for the hike rose to 47%) what additionally speaks in favor of the dollar correction on FOREX market.
A weak dollar on Tuesday made commodities denominated in dollars more attractive to investors, but a bearish report on US stocks from the API crossed the bulls' plans to win back losses. Prices for black gold slightly decreased on Wednesday, and probably will remain depressed amid OPEC's idleness. According to Scott Sheffield, chairman of Pioneer Natural Resources Co., the Permian oil basin stretching from Texas to New Mexico will keep US firms busy for at least 25 years, while production will remain profitable at prices below $30. Nomura analysts are more optimistic about the market, believing that prices have already bottomed out, but “badly damaged market sentiment and rising rig count in the US will dent recovery."