The Fed will have a more hawkish tilt in with the new nominations. To prevent runs on banks the EU is investigating a scheme to freeze bank accounts. This Thursday, the macroeconomic calendar will be pretty light, with nothing of relevance to be reported in the EU and the US offering minor employment reports and August Factory Orders, these last, seen up 2.
Themes affecting the EUR/USD
The USD tends to perform relatively poorly when the US fiscal situation is weaker, as the current account weakens. There could be risk for a period where the US Dollar correlated with stocks on the way down. Delays in the cuts to corporation tax would hit yields of longer dated Treasuries while shorter dated yields would hold up flattening of the curve.
We may not be able to accurately assess trend US inflation dynamics until 1H Rise of money supply and USD liquidity: M1 and M2 continues to climb, mitigating the the increase in interest rates. Investors using the USD to hedge their bets on the Fed, just in case they back down from their rate-hiking cycle.
Due to regulatory changes in U. The Fed shrinking the balance sheet instead of raising the policy rate. China's threat of selling a big chunk of those dollar reserves. The USD is in a 15 year super cycle decline. Libor has risen sharply over OIS, highlighting the tightness in dollar funding. Changes in tax policies are expected to create a huge demand for US dollar abroad because of repatriation of dollars back to the U.
Regulatory incentives may also influence the availability of dollar funding. The Fed will have a more hawkish tilt in with the new nominations. Jerome Powell indicated his preference for normalization of interest rates and maintaining that the Fed's balance sheet unwinding program. Wall Street friendly Fed chairman, Treasury secretary, and Council of Economic Advisers, forming a complete deregulatory trio which is positive for U.
Fiscal policy will overtake the monetary policy in stimulating the US economy. Tax cuts could reduce the trade deficit by half. The Fed will have to extend swap lines all over the world to allow some dollar liquidity but rates are going higher for this.
Dollars because the U. Oil being traded in other currencies does not impact the value of the Dollar. Chinese central bank to buy US Treasuries: In an unwind risk-off scenario, the USD strengthen on safe-haven flows. Dollar as the main reserve asset. Investors are paid to be long the dollar against most major currencies, a cheap way to hedge European or Japanese exposure. Increasing deposits in emerging markets currencies funded by borrowing in USD yield hungry international investors are happy to have exposure given the better economic situation in EMs.
Growth has converged, but monetary policy has not. Experts argue peak divergence - on the respective balance sheets - is still ahead. Germany continues to grapple with its political troubles and the possibility of facing new elections in The credibility of the ECB could be affected if the environment changes forcing the central bank to renege on its earlier guidance. Rates may not rise until well after the end of asset purchases, which would push the first rate hike out to ECB tightening could increase the borrowing costs for countries like Italy and Spain.
Italy will hold an election in March: In Italy, each of the four main parties opposing the Democratic Party subscribe to the introduction of a parallel currency to rival the Euro. Despite the cyclical recovery, core inflation still shows no sign of a convincing upward trend low wage growth. German industry is competitive at stronger euro levels though the cost structure of other economies is not as favourable.
The lending capacity of the ESM could be tested in the event of another recession in the Eurozone. Fundamental and Technical Average Timeframe of Trade: Event-driven macro and classic technical analysis Average Timeframe of Trade: A few days to a few weeks. In this session, we discussed the power of incorporating candlestick reversal patterns into one's trading arsenal.
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