Last week two Central Banks in the major group of currencies cut their interest rates, as a direct consequence that financial markets have not yet discounted a scenario of reduced global growth. The Reserve Bank of New Zealand cut 25bp to 2.25% in its statement it was mentioned that despite extraordinary global monetary accommodation the outlook of global growth has deteriorated, mainly due to weaker growth in China and “slower” growth in Europe. The European Central Bank has created as a solution to the inability or unwillingness of several central bankers in the European Community to fight inflation, as the local monetary authorities were not completely independent because they used to finance the debt of sovereign states in a process that kept real interest rates negative for a long time as inflation was above the nominal interest rate, thus savers were not encouraged to see money as a storage of value. Probably the founders of the ECB never could imagine that the institution that was created to export German credibility earned after the hard lessons during both the Weimar Republic and its tragic consequence would face the same problem that Japan has been having since the collapse of it stock market in 1991. There are common problems in the Eurozone and Japan like huge public debt, low growth and demographic shifts. One thing for sure, European policy makers can learn from Japan: even an aggressive quantitative easing cannot avoid a recession. Eurozone long term YoY growth is at 1.5%, just below the consensus of a 1.8% in 2016, and as Draghi cut rates to 0% and the deposit rate down to -0.4% means that the growth rate may deteriorate as deflation is pushing away both household and corporates from capital goods and investments.
The ECB also started to buy corporate bonds, a decision that can be considered controversial because the next step could be to purchase exchange trade funds or even stocks, as Japan has already done. The Kiwi dollar lost ground last week against the greenback, with NzdUsd at 0.6742 (-1.01% weekly), down 69 pips. UsdJpy closed nearly unchanged at 113.79 ( 0.01% weekly) and AudUsd gained 129 pips to 0.7558 ( 1.74% weekly). EurUsd rose 143 pips to 1.1144 ( 1.30% weekly) as the price following the rate cut rebounded on a short term bullish trendline that kept valid the positive trend on the rate. Positive performance also for the Loonie dollar with a gain of 95 pips against the greenback, with UsdCad at 1.3216 (-0.72%). UK policymakers are not happy with the Bank of England regarding its view on the risks of a Brexit, thus the British Pound should keep its volatility above its long term trend this year and on Friday GbpUsd closed at 1.4382 ( 1.12% weekly), up 159 pips. The Swiss Franc rose against the US dollar 111 pips last week and parity is now seen as a static resistance. In the commodity market Crude Oil could almost repeated the same performance of the previous week and kept its momentum high by closing in positive territory for the fourth consecutive week, closing at 39.75 $/barrel ( 7.15% weekly). Gold retraced to 1,250.42 (-1.54% weekly) as equities rose with the S&P500 managed to close above 2,000 at 2,022.29 ( 1.31% weekly). This week will be very rich of events because several central banks, FED included, will make decisions regarding interest rates. On Sunday, US and Canada will introduce the Daylight Saving Time thus there will be change on the opening of the FX market on Sunday and changes on the economic calendar as well regarding the data from US and Canada. The most important event on Monday will be the speech of RBNZ Governor Wheeler at 19:00 GMT. Tuesday will be another important day for forex traders as the Asian session will start with the RBA Meeting Minutes at 00:30 then the BoJ will decide the interest rate level and release a policy statement at 03:00 GMT. At 06:30 GMT the BOJ will hold a Press Conference. At 12:30 GMT., US Retail Sales data will be released and on Wednesday the ECB will have a Non Monetary Policy Meeting. At 18:00GMT., the most important event of the Day, the FED Interest Rate decision followed by Policy Statement and Press Conference at 18:30 GMT. At 21:45 GMT New Zealand GDP data. On Thursday at 08.30GMT.,the Swiss National Bank will decide its Interest Rate level, now negative at -0.75% and then it’s the turn of the Eurozone CPI at 10:00 GMT. At 12:00 GMT.,the Bank of England Interest Rate Decision and Minutes will be released. BoE rates at 0.5% may see an unexpected cut, as in the previous meeting the whole committee voted to keep rates unchanged. On Friday Canadian Retail Sales and CPI at 12:30 GMT and then FED`s Bullard speech at 18:00 GMT will be the last event in the calendar.