Als erstes Land sichert Belgien der Ukraine die Lieferung von 30 Kampfjets zu. Das Abkommen wurde am Dienstag unterzeichnet. Auch der Zeitplan steht schon.Markets:
It was a quiet session for the most part as markets are having to deal with long weekends in both the UK and US later.
Major currencies are lacking much enthusiasm, with the dollar lightly changed across the board. It is marginally lower but the ranges for the day are leaving a lot to be desired still. Dollar pairs are only seeing 20-30 pips range across the board, so that says it all really.
USD/JPY was down earlier in Asia to 156.70 but has recovered a little to 156.88 currently. Meanwhile, the aussie and kiwi are lightly higher but nothing to really shout about. AUD/USD is up 0.3% to 0.6645 from around 0.6630 earlier while NZD/USD is up 0.3% to 0.6140 from around 0.6125 earlier in the day.
In other markets, precious metals are hoping to steady themselves after last week’s rough showing. Gold is up slightly to $2,343 while silver is seen up 1.6% to $30.85 after coming close to a test of $30 on Friday.
With it being a US holiday, don’t expect too much action in the day ahead. The actual trading week is likely to only kick off tomorrow.
This article was written by Justin Low at www.forexlive.com.
Over the last few weeks, the ECB has been clear in their messaging that they will cut rates in June. The decision at their policy meeting next week is all but a given and markets are now well prepared for that. The key question now though, is what comes next?
Inflation pressures have waned in the euro area and that has given the ECB the confidence to take the first step. But the hard part is really trying to get inflation from 3% back to the 2% target, as the Fed is also finding out in the last few months. That especially on the part of core prices.
In other words, the „easy“ part is over and done with. Now, this is where the real challenge begins for major central banks.
In that regard, the ECB is also looking to wages data to try and get a better sense of the outlook. The Q1 numbers here last week were less than ideal, but they do come with a big caveat.
The large contributor of higher wages in the last quarter was arguably from Germany, which surprised with a 6.2% reading. That exceeded expectations but it is arguably a one-off amid a delayed call to action to compensate workers for the higher cost of living.
If all goes according to plan, we should see those negotiated wage numbers fall in the next few quarters. And that will hopefully help the ECB gather more confidence on the inflation outlook.
Taking that into consideration, what are traders anticipating?
After June, there will be four more policy meetings for this year. But as things stand, traders are only expecting one more 25 bps rate cut after the one next week.
The ECB has already hinted that they are not keen on a back-to-back move. Thus, July can safely be ruled out at this stage.
That leaves either September, October, or December as the potential to follow up on the June move. With the earliest still being at least four months away, there’s still plenty of room for pricing expectations to shift around. Going into next week, traders are seeing 56 bps of rate cuts for the ECB in 2024.
It’s all going to come down to the data to vindicate or change up that outlook.
If the disinflation process stays the path in the months ahead, that will definitely afford the ECB room to work with to keep at least one more rate cut in their back pocket for this year.
This article was written by Justin Low at www.forexlive.com.
Currencies are traded in
pairs, for example EUR/USD, AUD/CAD, EUR/JPY and so on. So, in order to
visually see the relationship between interest rates and currencies you need to
take the difference between the respective country’s bond yields and the corresponding
FX pair.
Let’s see an example with
EUR/USD. Since you have the EUR as the base currency, you need to take the
yield on the German bond (which is used as benchmark for the Euro Area) and
since you have the USD as the quote currency, you take the US bond yield. The
difference between the yield on the German bond and the US one gives you the
yield spread.
Now you just need
to compare it with the EUR/USD price chart to see the relationship and you will
notice that the yield spread generally leads the price of EUR/USD.
On the chart below, you will see that the divergence between the yield spread and the
EUR/USD price chart often led to big swings as the exchange rate caught up with
the yield spread at some point. There can be many reasons in the short-term
affecting the currency pair but eventually the exchange rate generally follows the spread.
For example, the last divergence was caused by the aggressive Fed tightening in 2022 while the ECB enacted a much slower strategy. Moreover, the war between Russia and Ukraine weighed on the sentiment and increased the pressure on the Euro. The pair eventually bottomed once the market sensed the peak in the Fed’s hawkishness.
I personally prefer to use the spread between the 10y yields, but in this case, the spread between the 2y yields (which is more sensitive to monetary policy) would have given a better picture.
Don’t trade just
based on the charts and correlations though but look for reasons and keep yourself
informed on the latest developments to give you a better edge. When you start to see a
divergence, be prepared to strike as soon
as the picture changes.
This article was written by Giuseppe Dellamotta at www.forexlive.com.