European markets are trading nearly flat, but have recovered most of their losses from last week. However, traders are lacking of direction when it comes to today’s market action and the trading session was very much the same over in Asia. What we had this week was the mammoth amount of news flow from central banks and it does not matter whether we are talking about the US, the Bank of Japan or the European Central Bank.
The president of the European Central Bank will be speaking later this morning and traders will be looking for clues to what he will do later next month. But, it is important to keep this in mind that we are talking about a person who is expert in speaking without providing any clear clues. Nonetheless, Investors will be crawling to look for any sign of confidence and that confidence is all about more stimulus package.
A perfect addiction for markets and something they cannot survive without it, especially now that the easy money circus will be going offline over in the US. The yield on German 2 year bond has slipped much lower and it is flirting with the level of -0.4%. Remember that the ECB limit of buying bonds is -0.2% and now the question is if the bank will lower their limit so that they can inflate their balance sheet further. Without addressing this limit, the ECB will have a little other alternative to play with.
If we look at the Eurozone currency, the path of least resistance remains towards the downside. This argument is even more strong when we look at the EUR/GBP pair- where the euro is literally getting crushed and there is a constant battle between bulls and bears to keep the pair above the level of 0.70. What is also important is to take under consideration the sell off, which we experienced yesterday for the mighty dollar. The green back moved much lower yesterday and the precious metal – gold moved in the opposite direction. The reason was simple, market participants had too much expectations from the green back and thought that the pair will continue moving higher in a much aggressive manner as the Fed will raise rates. But, Miss Yellen, the Fed chairwoman, does not want to take too much risk and the message so far from her colleagues is that the rate hike, which may take place next month will be in a very dovish manner.
What this mean is that the Fed may not lifting the interest rate by much and the path after that may not be that steep either. This has taken the wind out of the dollar rally. However, it is important to keep in mind that the Fed can change statement very frequently if the economic data permits them and in-fact the path of rate hike could change its course from a smooth ride to a much steeper path.
In terms of economic data, we do not have many firecrackers apart from FOMC member William Dudley will be speaking later. The game amid traders will still be the same and their focal points will be very much the same which we discussed above.