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2018-12-17
ECB: Too early to turn off the QE tap?

Last Thursday saw ECB’s last policy meeting for 2018 with confirmation of an end to the €2.6 trillion QE programme. Whilst not a surprise, the bullish headline nature of the announcement was largely ignored by the market. Mario Draghi’s outlook for growth was noticeably more cautious, describing the risks as “still broadly balanced” but “moving to the downside” - the key language on rates guidance: interest rates are expected to “remain at their present levels at least through the summer of 2019”.

 

Furthermore, confirmation that the ECB plans to reinvest maturing securities for "an extended period of time" demonstrates their commitment to keep markets rates low amid signs of slowing economic growth  highlighted by the posterchild of EU, Germany having a bad third quarter in 2018, shrinking by 0.2%

 

In basic terms, to balance out the risks, Draghi is offering concessions in order to transition away from printing money: postponing normalisation of...



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2018-12-10
USD: Are You Ready for a Sell-off?

The USD had a good year in 2018 by virtually all measures: the US Dollar Index (DXY) is up from the beginning of January by 5.7%, as compared to a depreciation of 10.4% in 2017; implied volatilities (using 1 yr EURUSD as a benchmark) are at a very subdued 7.7%, which compares to where it was at the beginning of 2017, at 10.5% ; the market continues to price in further hikes by the Fed, which continues to support the USD, and the Trump-imposed tax cuts gave the US economy a boost, again supporting the USD.

 

So all in all, a good news story. Or is it? 

 

We are beginning to hear rumblings from large market players that perhaps all is not so rosy for the USD on a forward looking basis: 

 

  • Goldman Sachs came out recently revising their forecasts for the USD, projecting a sell-off in 2019
  • Nomura has been vocal in its...


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2018-12-03
Three reasons to remain cautious about the euro

With so much focus on Brexit and Trump’s threats against China, it has been easy to overlook key influences for the euro in recent weeks. The single currency has been trapped in a relatively well-defined range against the Greenback in recent months ($1.12 – $1.18) but experience tells us not to become complacent in this environment.

 

With this in mind, we take a closer look at three key factors that in our minds, warrant caution for the euro and reinforce the bearish stance that we’ve maintained in recent years.

 

ECB Monetary Policy:

 

Back in 2012, at the height on the Eurozone debt crisis, Draghi pledged to do “whatever it takes” was enough to bring calm to the markets and stave of a run on Europe’s largest banks. Six years on, while many of the world’s central banks are attempting to normalise monetary policy (whatever that has come to mean) the ECB still has...



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