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30th March 2015
Is the euro primed for another leg lower?

After reaching a 12 year low at 1.0458 earlier this month, EUR/USD bounced back to test briefly above 1.10 last week, alleviating some of the downward pressure in the short term at least. However, having failed to sustain a move beyond 1.10, traders will be sat looking at their charts this morning, questioning whether this is the start of a sustainable recovery, or whether it’s merely a correction within the longer term downward trend that began almost a year ago. In our opinion, it’s the latter that continues to look the most likely scenario.

 

CHART 1: EUR/USD 1 Year

chart1

Source: Bloomberg

 

Greece

In recent weeks, the debate surrounding a possible Greek exit from the Eurozone has quietened. That’s not to say that it isn’t ongoing, but rather that it is no longer the topic grabbing the headlines. Instead, the ECB’s latest stimulus efforts and questions arising over the Fed’s stance on monetary policy have...



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23rd March 2015
FOMC: Attempt to suppress volatility while hinting at delay in rate hike

Looking at the FX markets today, with the dollar more or less unchanged, the FOMC meeting last week wasn’t as big of a big game changer at it may have appeared at first glance. Market expectations were partially fulfilled: the Fed’s Chairman Janet Yellen dropped “patient” from her statement, which many commentators had interpreted as a signal that the Fed would begin tightening within the next two meetings. In this report, we look at what this now means for the outlook for US monetary policy in the months ahead.

 

The sensitivity of the global financial markets to the Fed’s terminology and the word “patient” is around 95%. Investors know it, the government knows it, and most importantly, the Fed knows it. As such, the Fed knew that keeping the word in its statement could send the wrong message. But, is it really all that simple? To examine this closer, let’s look...



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16th March 2015
FOMC meeting shaping the direction of the currency markets

The developments in the currency markets over the past weeks with intra-day jumps of 2-3 cents have reminded everyone how stressful currency volatility can be. With GBPUSD consolidating below 1.50 and GBPEUR rallying higher on the euro weakness, both pairs are converging on 1.45 (chart 1). In other words, this would imply EURUSD reaching parity. The FOMC meeting this Wednesday is set to be a key determinate of directional bias for the dollar in the months ahead.

 

Chart 1: Convergence of GBPUSD and GBPEUR 

chart1

 

 

The Chairman of the Federal Reserve, Janet Yellen, continued the previous approach of Ben Bernanke in terms of tapering QE3. However, Janet Yellen has shifted from Bernanke’s date dependant approach to data dependant approach. Over the past months, despite inflationary pressures on the back of oil price, the overall US data flow has been positive. The Fed avoided a mistake of the past when it defined specific thresholds...



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