With little data out today, this morning’s market movement has been driven mostly by talk of ECB demand for Italian debt in the secondary market. The weeks trading decisions have been dominated by Euro yield movements and the Bund spread. If it was not an Italian problem, then it was Spanish or French. Intra-day trading has mostly been a carbon copy of the day before, little change in theme, same toxic variables, and a market all thinking they want to apply the same trade ‘but not at these levels’.
In FX we have witnessed a market suffering a slow motion meltdown. With CHF out of the equation, because of the SNB actions, the USD and JPY have gained significantly against the EUR, commodity bloc and EM currencies compared to this time last week. The surprise to most has been how orderly and gradual the moves have occurred. Normally, with any risk aversions trading strategy decision, “Panic†seems to be the outlier as investors all run for the exits at the same time.
Analysts attribute the relative stability in the currency markets to three factors, “positioning, reserve manager activity and caution over potential policy response”. We should be able to throw in other adjectives like jaded, clueless, resigned and fearful. There are obviously many more.
What have we got to look forward to in the short term? Presently, the EU policy process remains adequate for preventing worst case scenarios in the Euro-zone, but for how long? It’s all about capital market confidence and the public Franco-German spat over the legal and political role of the ECB does not help. With the ECB not acting as a crisis backstop, risk reward remains favorable for the dollar and yen. Stronger US fundamentals are not part of any equation, albeit a prerequisite, they are not yet a trend and remain vulnerable to consistency due to the Euro-sovereign debt crisis.
The pressure on the ECB to resolve this crisis is reaching a tipping point. Something has to give, either the ECB cracks or the EUR. Place your bets!
Other Links:
France and Germany break ranks over ECB intervention
Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.
Dean Popplewell
He has a deep understanding of market fundamentals and the impact of global events on capital markets.
He is respected among professional traders for his skilled analysis and career history as global head
of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean
has played an instrumental role in driving awareness of the forex market as an emerging asset class
for retail investors, as well as providing expert counsel to a number of internal teams on how to best
serve clients and industry stakeholders.
Latest posts by Dean Popplewell (see all)
- Euro zone bond yields sink as German manufacturing slows - 24 July 2019
- How Boris Johnson Plans to Deliver Brexit in 100 Days - 24 July 2019
- Weak PMI’s Sink EUR - 24 July 2019