Many investors shared their views on the outlook for the global economic market and the possible measures to deploy monetary measures, in order to achieve stability and keep the economy on the growth track. Investors have geared up for the ECB President Mario Draghi’s cues since after the rate decision in May it is clear if Draghi has finally spotted the recovery trend in the mixed Eurozone economy figures.
The last ECB meeting made it clear that the deflation risks have receded and the economy has entered a growth phase. The policymaker confirms that the “deflationary expectations were replaced by reflationary ones”. This suggests that the ECB has received convincing evidence that the monetary injections into the economy were not in vain and had an appreciable effect. Next ECB steps, will ride on the incoming data, as Draghi hinted that inflation figures will play a key role in guiding the bank through policy exit.
The fixed income market began to frantically remove the bonds with current yield, as the prospects of tapering off the QE became even clearer. The president of the ECB noted that banks could begin reducing the asset balance before the rate hike, creating a threat of flooding the market with bonds in the near future. German yield on 10-year bonds, especially sensitive to changes in expectations, increased by 53% in less than two days to 0.375% per annum, the September Euro-Bund futures fell by 1.2%.
The European currency climbed more than 1% on Tuesday, as investors are in a hurry to take a comfortable position about the Euro before the ECB makes a global U-turn in the monetary policy. On Wednesday, the common currency is set to test the level of 1.14, the highest for 13 months. For bears, it becomes increasingly difficult to defend the levels amid the hawkish Draghi statement, so the unimpeded Euro climb looks quite logical. EUR/USD did not experience significant resistance at 1.1350, however, it will probably feel insecure above 1.14 allowing bears to launch a counterattack. Short positions look reasonable from the range of 1.1420 – 1.1450, but the news on Trump slipping plans, the speech of FED’s Representative Williams and the data on trade balance can slyly let the Dollar down, despite the second-tier significance of this news.
The Dollar became more attractive to the investors, but a bearish report on US stocks from the API crossed the Bulls’ plans to win back losses. Prices for the Black Gold slightly decreased on Wednesday, and probably will remain depressed amid the OPEC’s idleness. According to Scott Sheffield, chairman of Pioneer Natural Resources Co., the Permian Oil basin stretching from Texas to New Mexico will keep the US firms busy for at least 25 years, while production will remain profitable at prices below $30. Nomura analysts are more optimistic about the market, believing that prices have already bottomed out, but “badly damaged market sentiment and rising rig count in the US will dent recovery.”
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