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ECB & FOMC Back In Focus For Forex Traders

By:
Barry Norman
Published: Apr 19, 2016, 04:15 UTC

US Treasury rallied, driving the yield on 10-year notes toward a seven-week low, as investors flocked to haven assets amid a plunge in crude prices after

ECB & FOMC Back In Focus For Forex Traders

US Treasury rallied, driving the yield on 10-year notes toward a seven-week low, as investors flocked to haven assets amid a plunge in crude prices after oil producers failed to agree on limiting supplies. Sovereign debt in Japan and Australia also gained after International Monetary Fund said global finance chiefs remain concerned about the economy around the world. Ten-year Japanese government bond yields slid one basis point to minus 0.125%, near the record minus 0.135% reached on March 18. Australia’s 10-year sovereign note yield dropped six basis points to 2.5%. Federal Reserve policy makers have cited global risks in their decisions not to further raise interest rates so far this year.

Traders are quickly moving past oil prices this morning with the DOHA meeting becoming a thing of the past and central banks once again become the focus. Thursday will be the ECB meeting with no changes expected but the following press conference by Mario Draghi could spark up the markets. The following week with the April Federal Reserve meeting.

ecb stimulus

The Express Tribune in a recent article reported on the conflict between the ECB monetary stimulus and the German Central Bank.  The European Central Bank, increasingly under fire in Germany over its ultra-loose monetary policies, will likely go out of its way to defend its independence at next week’s governing council meeting, analysts said.

ECB president Mario Draghi “will respond to German politicians’ recent criticism … by reiterating the bank’s independence and stressing that more support is still possible,” said Capital Economics economist Jennifer McKeown.

qe stimulus probablities

German Finance Minister Wolfgang Schaeuble has been unusually frank about his growing displeasure at the ECB’s decision to slash interest rates to zero, suggesting that the policies were helping foment political unrest in Europe’s biggest economy and aiding the rise of an anti-euro, anti-immigrant party, the AfD.

eurusd

The euro is much higher that the ECB would like. This morning the EUR/USD is trading at 1.1321 bouncing off its 1.14 highs. Despite unprecedented measures by the European Central Bank president so far, Bloomberg’s survey of 47 analysts who cover the institution showed more than 60 percent think he isn’t yet done. The most likely date for fresh action was put as the Sept. 8 policy meeting, though some predicted it could happen as early as June. No new stimulus is expected when officials meet this Thursday. Draghi reiterated in Washington last week that it is “crucial” the very low inflation environment does not become entrenched in second-round effects on wage and price-setting. The inflation rate was zero last month, and economists see it climbing only slowly to average 1.7 percent in 2018.

His concerns appear to be weighing on economists’ optimism. In the survey before the ECB’s March 10 meeting, most respondents said the rate cuts and QE boost they expected then, and which Draghi delivered, would be enough to get the job done.

The US dollar is trading at 94.41 dipping 4 points on Tuesday morning as traders look forward to next week’s FOMC meeting. Reuters reported that the Federal Reserve Chair Janet Yellen has declared that the U.S. central bank’s interest-rate decisions will depend on how the economy performs.

us dollar

But Fed officials and their staff are already dismissing large swathes of the most recent economic data because they view it as unreliable, a twist that could make it harder for investors, businesses and households to plan for the central bank’s next interest-rate move.

“I would take the first-quarter real GDP estimates with a big grain of salt,” the San Francisco Fed’s chief of research, Glenn Rudebusch, told Reuters in an interview on Friday. “First-quarter will be weak, but we think that it is not representative of the underlying strength of the economy.”

The government will not publish its first estimate of first-quarter economic growth until April 28, the day after the Fed’s next policy meeting, but unofficial guesses are coming in low. The Atlanta Fed, for instance, currently estimates first-quarter GDP growth at a barely perceptible 0.1 percent.

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