Daily Market Update

Europe’s economy leaves QE behind, FX rates flat

December 13, 2018

The U.S. Dollar is trading in somewhat quiet ranges, with Euro being really the only truly fluctuating counterpart at the moment.

Overview

At the time of writing, European Central Bank President Mario Draghi was telling a press conference that there are downside risks to the economy and that the inflationary growth forecast for 2019 was downgraded. The Euro responded by falling back to the weaker ranges of earlier this week after having gained 50 basis points when it was announced officially that the quantitative easing program would be done with. Expect Euro volatility to continue, but we feel it has much room for improvement, but its advances may come slowly.

Other than the serious Euro-focus as no data is out on our side, the greenback will be guided by commodity prices as those accommodate for the prospects of higher energy costs since oil has been climbing and is expected to continue. Resource-based or emerging-markets, are looking to continue to push towards recovery against the buck, which rose to multi-year high levels against ZAR, BRL, and others in 2018.

 

What to Watch Today…

  • No major events scheduled for today.

The complete economic calendar can be found here.

 

EUR

Today is a big day across the Atlantic today as Europeans ready themselves for the holidays with some serious business items at hand. The most anticipated of these is Mario Draghi’s press conference as he explained the ECB’s decision. Overall, Draghi seemed cautious while still affirming that the financial system could now move forward on its own without the injection of sovereign bond purchases or getting rid of toxic assets in the books for banks that struggled after the 2008 crisis.

Nevertheless, the ECB wants to maintain the environment accommodative so interest rates are not planned to be increased before the summer nor will Targeted Longer-Term Refinancing Operations (TLTROs) be eliminated as an option since another round of them could come up. These truly are measures to foster bank stability after a major shock and credit crunch.

Finally, the second item is French President Emmanuel Macron’s troubles at home. Protests and strikes have consumed daily life in France as the country tries to align a satisfactory and expansionary spending budget. Today, Macron faces a no-confidence vote raised by parliamentary members who feel this past month of unrest reflects poorly on his decision-making and inability to unify. If he lives, Euro might start making a climb.

GBP

The Pound is resting along with many other currencies today against the dollar. Perhaps we will start entering the lull of holiday trading, but this does not mean Brexit concerns will be put to rest. The long-term convoluted process is more uncertain now than ever even as Theresa May can cheer on surviving yet another threat to her leadership. Tories decided to keep her as party leader, but about 33.0% of them voted to oust her.

May briefly came out of 10 Downing Street to say she will continue her work after a very tough week, and then stepped back in without taking questions. Parliament is a different situation, so while May is immune from her party raising a confidence vote in the next 12 months, the rest of the legislative body can. There are deadlines ahead, miracles could happen, but it is possible the Brexit question will drag on for a while. Too much on the line for a clean break. They finally see it too.

 

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