Finally, some movement among the majors! It’s unusual nowadays to see EUR/USD as the currency pair with the largest movement on the day, but yesterday the pair fell sharply. The apparent cause, according to the news services, was the disappointing Ifo indices, which fell instead of rising as expected. It was particularly noticable that the expectations index fell to 95.2 from 95.6, whereas it had been expected to rise to 96.1 – meaning executives are getting more pessimistic about the future. Manufacturing confidence also fell in France.
The GDP debt for the US was already at 105.4 %. Europe’s GDP is around 85.10 and Germany`s at 60.90 % respectively. The dynamics of debt evolution will have implication in FX rates and of course in further interest rate divergence.
Since I was travelling yesterday morning I didn’t have a chance to run my spreadsheet. Hence the graph this morning shows the change in the trade-weighted indices from Monday morning in Asia. However, given that Monday was a holiday in most European centers, the bulk of the changes occurred Tuesday in any event.
ECB’s President Draghi during last week`s press conference said that the Bank needs ‘’further information that will come to us between now and June’’ concerning details on the new series of TLTROs. Moreover, he stressed that the ECB would even tolerate a temporary period above target inflation for further support of the EU economy. Additionally, ECB’s Villeroy said that as a whole negative interest rates are positive. In contrast, ECB’s Nowotny said that there no official plans for tiering.
Please notice the scale on my graph of the trade-weighted indices. I had to change the scale today to two decimal places to show the tiny movement in the market. That’s probably because Friday was a holiday in many of the major markets and today is a holiday in many of the major markets too, so a lot of traders are out and those that are in the office are probably just doing as little as possible to get by.
• Due to the weak GDP growth in the second half of 2018 and the escalation in the trade dispute between China and US, the Australian Dollar depreciated very aggressively. • Australia`s economy is affected by the changes of the Chinese economy - if it recovers or not.
You know how sometimes you have a constant pain somewhere for so long that you almost forget about it, and all of a sudden it’s gone and you realize once again what a pain it was? Or a steady ringing in your ears stops? How about the dog next door barking constantly, and suddenly it stops and you realize how quiet the neighbourhood is? That’s how I felt during the week just ending: the first week in months with no Brexit noise.
EUR fell on the weaker-than-expected Eurozone preliminary purchasing managers’ indices (PMIs). In particular, the German manufacturing PMI was up only slightly to 44.5 from 44.1, missing expectations that it would recover to 45.0. The overall Eurozone manufacturing PMI also missed expectations, rising less than expected, while the Eurozone service sector PMI fell more than expected. As a result, the overall Eurozone composite PMI fell to 51.3 from 51.6 instead of rising slightly as had been expected.
WTI and Brent Oil prices are trading lower by -0.4% at $63.60 and $71.25 per barrel respectively during the early Tuesday’s European trading session amid the deterioration of the risk sentiment after the disappointing Eurozone economic data despite the impressive Chinese economic data and the draw in the US crude inventories.
Pathetic movement! It hardly bears commenting on currencies when they move so little. CHF was once again lower – as I mentioned yesterday, when volatility is low and people expect the global economy to improve, it’s generally a good environment for carry trades, and what better currency to borrow and short than the one with the lowest interest rates in recorded history?
• The risk of No deal Brexit have been minimized due to EU leaders agreement to a further postponement of the Brexit deadline to 31 October 2019. • The GBPUSD remains to positive outlook due to a weaker USD expectation after the upward cycle in interest rates was completed. • The Sterling remains chartered in parliamentary decisions in respect to Hard, Soft or No Brexit at all.
Volatility comes back to the market! It’s noticeable too that this wasn’t just “risk on” or “risk off” – AUD is the biggest gainer and NZD is the biggest loser, whereas usually those two move together nowadays (daily moves in the two have been 74% correlated over the last two years, the second-highest level of any major pair after NOK/SEK).