While the fears of a recession in the US that temporarily prevailed on the market are increasingly proving to be exaggerated, the economic outlook for the euro zone has become considerably cloudier, according to Thu Lan Nguyen, analyst at Commerzbank. For this reason investors are again betting on more divergence between the Fed and ECB’s monetary policies and therefore on an elevated “crash risk” in EUR/USD.

Key Quotes

“The recent improvement in economic data and a somewhat stronger inflation pressure have for now dispelled the fears of a recession in the US that had temporarily dominated the markets.
Also, inflation expectations have moved away from their lows, and the trade-weighted exchange rate of the USD has stabilised. Since today’s employment report should also turn out rather positive, it is likely that investors will increasingly bet on rate hikes by the Fed, which should provide tailwinds for the USD.”

“In contrast, prospects for growth in the euro zone have deteriorated considerably. Weak economic indicators and the decline in the euro zone inflation rate have made it more likely that the ECB will decide a comprehensive package of measures next Thursday. An elevated “crash risk” in EUR-USD is therefore being priced on the option market.”

“Further developments in the EUR exchange rates will eventually depend on the specific expansionary measures which the ECB takes at its upcoming meeting. A reduction of the deposit rate alone would be unlikely to weigh on the EUR, even if it turned out larger than currently anticipated on the market. In this case investors would probably speculate that the ECB has virtually reached the lower bound in interest rates, which means that further rate cuts would be unlikely. But if the ECB at the same time introduces a tiered interest rate or completely exempts a part of excess reserves from the negative interest rate, like the Swiss and Japanese central banks have done, the EUR should come under stronger pressure, as the ECB would thereby reduce the burden on banks and attain greater leeway for further rate cuts. The ECB could thus credibly threaten further rate moves and in this way weaken the EUR on a sustainable basis.”

While the fears of a recession in the US that temporarily prevailed on the market are increasingly proving to be exaggerated, the economic outlook for the euro zone has become considerably cloudier, according to Thu Lan Nguyen, analyst at Commerzbank. For this reason investors are again betting on more divergence between the Fed and ECB’s monetary policies and therefore on an elevated “crash risk” in EUR/USD.

(Market News Provided by FXstreet)

Read More

Analysts at TD Securities explained that the Chinese New Year holidays likely skewed the February data sharply in Trade Balance, Retail Sales, Foreign Reserves and CPI.Key Quotes:”We see downside risks to consensus on trade. Retail sales YTD should smo…

Read More

Analysts at TD Securities explained that it is all eyes on the RBNZ Thursday.

Key Quotes:

“With a strong view needed to capture the market’s attention ahead of the ECB decision that evening.

We don’t expect a cut next week or all year, despite the slide in inflationary expectations.

The RBNZ has a lot more work to do to convince the population and markets that inflation is closer to 1.6% than zero.”

Analysts at TD Securities explained that it is all eyes on the RBNZ Thursday.

(Market News Provided by FXstreet)

Read More

Analysts at Rabobank explained that in a speech at last month’s G20 gathering, Bank of England Governor Carney commented that “when negative rates are implemented in ways that insulate retail customers…their main effect is through the exchange rate channel”.

Key Quotes:

“Five central banks are currently using negative interest rates. The ECB, SNB, DNB and Riksbank have this year been joined by the BoJ. “

“In the context of the currency war a successful outcome from a central bank’s decision to employ negative interest rates would be a depreciation of its currency which counters deflationary or disinflation pressure. “

“Each of the five central banks employing negative interest rates has generated a different currency impact. Three of the five central banks continue to be blighted by deflation. “

“Going forward, since the economies of Switzerland, Sweden and Denmark are heavily dependent on trade flows with the Eurozone, the policy decisions of the SNB, Riksbank and DNB will continue to be deeply influenced by those of the ECB.

Despite widespread concerns about the economic side-effects of negative interest rates, for all five of these central banks a clear escape from this policy may only come once the global economy escapes the constrains of slow growth; an event which is proving disappointingly elusive.”

Analysts at Rabobank explained that in a speech at last month’s G20 gathering, Bank of England Governor Carney commented that “when negative rates are implemented in ways that insulate retail customers…their main effect is through the exchange rate channel”.

(Market News Provided by FXstreet)

Read More

USD/JPY is volatile within a 1 cent rage between 114.20 and 113.12 in the aftermath of the nonfarm payrolls event that offered a mixed report. Initially, the headline looked good, but the details behind that showed that things were not so brightly in r…

Read More

USD/CAD turned lower and fell sharply to fresh 3-month lows as the greenback weakened across the board as investors realized that despite the US NFP headline was strong, earnings data was disappointing.

USD/CAD initially moved up and peaked at 1.3470 but then turned around, falling all the way to 1.3329, its lowest since December, with the loonie shrugging off a below expectations Ivey PMI. At time of writing, the pair is trading at 1.3335, down 0.5% on the day.

USD/CAD significant levels

As for technical levels, next supports are seen at 1.3278 (200-day SMA) and 1.3245 (Nov 19 low). On the flip side, immediate resistances could be faced at 1.3470/72 (Mar 3 & 4 highs), 1.3534 (10-day SMA) and 1.3650 (100-day SMA).

USD/CAD turned lower and fell sharply to fresh 3-month lows as the greenback weakened across the board as investors realized that despite the US NFP headline was strong, earnings data was very disappointing.

(Market News Provided by FXstreet)

Read More

Gold price rose on a weaker the U.S. dollar. The U.S. dollar fell against other currencies on the mixed U.S. labour market data. The U.S. Labor Department released the labour market data on Friday. The U.S. economy added 242,000 jobs in February, excee…

Read More