Zak Mir, technical analyst for Zak’s Traders Café, was alongside Bill Hubard, Chief Economist at Bullion Capital, when he opened the Tip TV Finance Show to discuss the upcoming ECB meeting, as well as the Federal Reserve and Yellen ahead of the interest rate lift-off in December.
ECB risks undershooting expectations, CHF could follow EUR
Mir highlighted FX Street, who noted that ahead of the ECB rate decision, they are expecting a cut to deposit rates of 10 bps, plus a minor tweak to the QE program. They continued that markets have priced-in a deposit rate cut and changes to QE, and thus risks of undershooting the expectation are there for the central bank. In terms of the USD/CHF, ECB action would equal SNB retaliation, and therefore the USD/CHF is likely to rally whilst the EUR/USD falls. Hubard added that there were positive EU numbers yesterday, but still no inflation, which incites the question whether the ECB needs to act or not. He also commented that as Draghi wants to push the Euro lower, and with the Fed becoming more and more likely to raise interest rates, it is expected that Draghi will take the policy divergence play and follow through on the ECB expectation for action.
Fed rate hike to be ultimately confirmed by Yellen today?
Hubard outlined the Fed futures, which are implying 74% chance for a Federal Reserve interest rate hike, whilst he maintained a view that the markets believe a hike in the US is 95%, and that there is already a 30% probability for a second hike in March. Hubard continued that Yellen will have the US NFP data when she speaks later today, and thus we will be able to pick out both the strength of US employment and remove the last bit of uncertainty surrounding a Fed hike.
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