Full report
Dear traders,
We entered this year full of optimism and hope, as our worries over the USA economy did not materialise and the overall situation in the world seemed to be improving. However, geopolitical tensions emerged and took us by surprise, revealing that at the very least the near future is not going to be characterised by stability and calmness. Since the latest events are highly unlikely to go unnoticed in the context of global economic recovery, a return to the risk-on environment, which was expected to develop in early 2014, will be postponed.
Unfortunately, this is not the only reason to remain cautious and doubtful this quarter. The 18-nation bloc is currently battling with stagnating price growth. We are all well aware of the possible implication if the right action is not taken in time. And even though Japan looks to be close to achieving success by exiting the vicious circle, as inflation is currently fluctuating around 1.5%, this example forced the Federal Reserve, as it now seems, to do a little in excess of what was required in order to rule out any possibility of facing deflation.
In the meantime, the European Central Bank, led by Mario Draghi, refrains from any bold measures for the moment, even though the Euro is on the rise. This tendency of the currency to appreciate may further aggravate the situation, as it increases the risk of declining prices. As a result, many of the economists expect the monetary authority to turn to unconventional easing measures in order to veer the union’s economy away from the spiral the Japan’s economy found itself back in the 90’s.
And although the aforementioned may create a somewhat gloomy representation of reality, it serves it just reminds us to ‘trust, but verify’ and to never forget about hedging. Always being ready for the worst possible course of events in order to take proactive measures and prevent them from taking place or at least limiting the potential negative impact of the unwanted events is one of the keys to success in the long run.
Kind regards,
Alexander Suhobokov, CFA, FRM
Head of Research
Dukascopy Bank SA
Dear traders,
We entered this year full of optimism and hope, as our worries over the USA economy did not materialise and the overall situation in the world seemed to be improving. However, geopolitical tensions emerged and took us by surprise, revealing that at the very least the near future is not going to be characterised by stability and calmness. Since the latest events are highly unlikely to go unnoticed in the context of global economic recovery, a return to the risk-on environment, which was expected to develop in early 2014, will be postponed.
Unfortunately, this is not the only reason to remain cautious and doubtful this quarter. The 18-nation bloc is currently battling with stagnating price growth. We are all well aware of the possible implication if the right action is not taken in time. And even though Japan looks to be close to achieving success by exiting the vicious circle, as inflation is currently fluctuating around 1.5%, this example forced the Federal Reserve, as it now seems, to do a little in excess of what was required in order to rule out any possibility of facing deflation.
In the meantime, the European Central Bank, led by Mario Draghi, refrains from any bold measures for the moment, even though the Euro is on the rise. This tendency of the currency to appreciate may further aggravate the situation, as it increases the risk of declining prices. As a result, many of the economists expect the monetary authority to turn to unconventional easing measures in order to veer the union’s economy away from the spiral the Japan’s economy found itself back in the 90’s.
And although the aforementioned may create a somewhat gloomy representation of reality, it serves it just reminds us to ‘trust, but verify’ and to never forget about hedging. Always being ready for the worst possible course of events in order to take proactive measures and prevent them from taking place or at least limiting the potential negative impact of the unwanted events is one of the keys to success in the long run.
Kind regards,
Alexander Suhobokov, CFA, FRM
Head of Research
Dukascopy Bank SA