Risk-On in Heat Wave
News that policymakers in the US have struck a deal to increase the $22tn debt ceiling was viewed as a risk positive by equity markets. The deal reduced the risk of a default and increased the likelihood of fiscal stimulus. Combines expectations of upbeat earnings results this week Asia equities were green across the board, however broader macro safe-haven trades did not soften.Reaction to current earning season has been muted as Tech shares led the S&P 500 higher. EURCHF has reached critical psychological support of 1.1000. At this point, there has been no signal from the SNB as to their strategy. The market is moving cautiously but continues to push CHF higher. With a lack of 1st tier data markets will be watching events in the UK. Boris Johnson is expected to become the UK next prime minister today. However, this provides zero additional clarity into his strategy to execute Brexit and his "do or die" pledge to deliver Brexit. We remain negative on the GBP outlook as we suspect that new Prime Minister Boris Johnson will drive towards no-deal exit from the EU rather than negotiate sticky points. Finally, Bitcoin fell below $10k as expectations for Fed interest rates cutes (debasing of US dollar) has been reduced. Increasingly we see the “king” of crypto as a gauge for Central bank's monetary policy. US existing home sales and the Richmond Fed index are expected, but none of them will shift market direction.
Stay on top of the markets with Swissquote’s News & Analysis
ECB to Signal but Not Cut
This Thursday ECBs governing council will signal a willingness to ease further. However, there are numerous agreements for a proactive 10bp to 20bp deposit rate cut. We have still expected the first cut of 10bp in September. ECB Chief Economist Philip Lane comment that ECB needs to move "proactively" to an inflation rate that was too low. Yet, there is a growing resistance to negative interest rates despite weak economic data. Banks, companies and private households are hurting with long-term damage unknown. Generally, the ECB has acted in reaction to a crisis. But with an unemployment rate of 7.7% Europe is far from crisis levels signaling to financial markets that extreme policy is necessary would be counterproductive. For Thursday we are likely to also hear of the ECB plan to introduce tiered inters rates, so entities that are affected can be micromanaged. Official central bank rates will likely only apply to a portion of a deposit and select entities. Limits to the usefulness of rate cuts, the assumption has grown that the ECB might restart bond purchases. Although this strategy is questionable without an additional deterioration in the economic situation. Also, ECB will be hesitant due to volume limit rules which can’t breach 33% of the outstanding volume of an individual bond. Regardless, the market is expecting ECB dovish skew by selling Euro across the board. EURUSD clear 1.1200 support, with bearish extension likely to reach 1.1107(2019 low).
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
Recommended Content
Editors’ Picks
EUR/USD trades weak below 1.0800 amid Good Friday lull, ahead of US PCE
EUR/USD continues its downward trend for the fourth consecutive day, driven by a stronger US Dollar influenced by the hawkish market sentiment surrounding the Federal Reserve and expectations of prolonged higher interest rates.
GBP/USD: The first downside target is seen at the 1.2600–1.2605 zone
GBP/USD trades on a weaker note around 1.2620 during the early European session on Friday. The decline of Pound Sterling is backed by the growing speculation that the Bank of England will begin the rate-cut cycle this year.
Gold ends Q1 2024 at record highs, what’s next?
Gold is sitting at an all-time high of $2,236, lacking a trading impetus amid holiday-thinned conditions on Good Friday. Most major world markets, including the United States are closed in observance of Holy Friday, leaving volatility around Gold price highly subdued.
Ripple's move above this key level could trigger nearly 50% rally for XRP
Ripple price has overcome a critical resistance level and flipped into a support floor on the weekly time frame. This development happened while XRP tightly consolidated for roughly 250 days.
US core PCE inflation set to ease in February on month as Federal Reserve rate cut bets for June mount
The core Personal Consumption Expenditures Price Index is set to rise 0.3% MoM and 2.8% YoY in February. The revised Summary of Projections showed that policymakers upwardly revised end-2024 core PCE forecast to 2.6% from 2.4%.