Following last week’s stunning events, the focus was on the ECB and the awaited launch of QE. More drama has ensued with Mr.Draghi’s announcement that went beyond expectation and beyond the numbers leaked to the press yesterday.
Mr. Draghi did not disappoint this time. QE has come to the Eurozone , the program will begin in March and is planned until September 2016 buying 60billion per month of ‘private and public debt’. QE is not a quick fix and can take as much as 18 months to show consistent growth performance. That is if it works. The ECB hawks are appearing already criticising the decision and if it requires one thing its going to be a sense of European unity.
As one would expect, the market reacted and accordingly we saw a drop in the euro (against the dollar) to 1.1315 breaking a 2003 low. It lost ground in all its pairings, including the GBP,NZD and CAD.
More Forex Drama
There was another surprise in Canada where the BOC unexpectedly cut the rate to 0.75%. Canada continues to see the low oil prices putting pressure on economic growth and this in a week where the IMF once again lowered global forecasts. The USD made strong moves against the CAD continuing the uptrend.
More Doves Appear
It will be important to watch the FOMC next week to assess if their tone becomes more dovish. In the wake of the IMF and some recently disappointing data including yesterdays unemployment data which missed the expected number, a continuing trend towards an ‘accommodative’ stance has been developing.
There are still those members who think that rate hikes could be possible in 2015 but emphasis is now on holding back until signs are more promising and consistently so.
This will effectively weaken the dollar ’s uptrend although the US continues to be the great hope for a recovering economy and still the favourite to tighten policy first. Wage data will be a prime factor and policy and tone will have to be monitored carefully.
Following the Canadian lead and the global outlook we can expect a more dovish tone elsewhere, in Australia , the UK and New Zealand.
Other Fundamentals;
Equities as expected saw strong up moves following the ECB news especially the European bourses as the long awaited liquidity brought optimism for recovery.
Oil had a volatile day closing where it opened but jumped this morning on news of the Saudi King’s death yesterday. Another unexpected news event which will have to be monitored to see if Opec policy is changed.
Gold has also benefited from the last week’s dramas, with its second week of significant gains, trading currently at 1299.
Once again a lot to digest. Amongst the growing number of struggling economies,deflation threats and the volatility that is entering the market the goal to weigh the comparative strengths is growing in complexity as is the need to remain vigilant on matters of national monetary policy.
A full report next week to consider this weeks news and data which will include the Greek election which takes place on Sunday and another potential dramatic event. Be warned of the dangers of holding positions over the weekend.When there is potentially explosive news gaps can be unpredictable.The lessons of the SNB show how stops can be ineffective in fast moving markets as they can also be in gapping markets.
Safe trading
Judith Waker
0 Comments