Full Report
Dear traders,
Instead of getting nearer to a long-awaited robust global economic recovery, it seems we have been moving in the wrong direction after all. In place of positive reinforcing signals that the world’s largest economies are finally feeling the effect of remedy in the form of expansionary monetary policy, we are receiving soft and not-so-soft hints that the end of an easing cycle might not be as close as initially anticipated. In effect, we could be far from normalisation, with structural problems still on our hands.
It thus appears reasonable to take a defensive position at the moment. One of the major arguments in favour of such a stance relates to the shockingly poor US performance during the first quarter. The disappointing news could be in part justified by bad weather conditions and other negative factors, but a contraction of such magnitude cannot be easily ignored, as we are facing a very real threat of recession in the world’s largest economy and all the implications it might entail.
Things look blue on the opposite side of the Atlantic as well. Mario Draghi, having postponed forceful actions until now, has finally fired his cannon. But, judging from the market reaction to the newly implemented measures – or, rather, lack thereof – the markets largely remain unconvinced the effort is sufficient and will be expecting more, as it seems.
One of the few developed countries coping with the headwinds on a more or less satisfactory level is Japan, where Shinzo Abe and his team are making good progress in fighting off deflation and anemic growth, even against the background of a dim outlook for the rest of the developed countries. This is why the Bank of Japan could be the least inclined to act. However, a move from the BOJ should not be ruled out just yet, specifically because of their determination to prompt price growth to a healthy pace.
So all in all it might be a good idea to remain vigilant. Just buckle up and get ready for some turbulence before the risk-on sentiment finally picks up for sure.
Kind regards,
Dukascopy Research Team
Dear traders,
Instead of getting nearer to a long-awaited robust global economic recovery, it seems we have been moving in the wrong direction after all. In place of positive reinforcing signals that the world’s largest economies are finally feeling the effect of remedy in the form of expansionary monetary policy, we are receiving soft and not-so-soft hints that the end of an easing cycle might not be as close as initially anticipated. In effect, we could be far from normalisation, with structural problems still on our hands.
It thus appears reasonable to take a defensive position at the moment. One of the major arguments in favour of such a stance relates to the shockingly poor US performance during the first quarter. The disappointing news could be in part justified by bad weather conditions and other negative factors, but a contraction of such magnitude cannot be easily ignored, as we are facing a very real threat of recession in the world’s largest economy and all the implications it might entail.
Things look blue on the opposite side of the Atlantic as well. Mario Draghi, having postponed forceful actions until now, has finally fired his cannon. But, judging from the market reaction to the newly implemented measures – or, rather, lack thereof – the markets largely remain unconvinced the effort is sufficient and will be expecting more, as it seems.
One of the few developed countries coping with the headwinds on a more or less satisfactory level is Japan, where Shinzo Abe and his team are making good progress in fighting off deflation and anemic growth, even against the background of a dim outlook for the rest of the developed countries. This is why the Bank of Japan could be the least inclined to act. However, a move from the BOJ should not be ruled out just yet, specifically because of their determination to prompt price growth to a healthy pace.
So all in all it might be a good idea to remain vigilant. Just buckle up and get ready for some turbulence before the risk-on sentiment finally picks up for sure.
Kind regards,
Dukascopy Research Team