Week In FX Europe – Central Banks Dominate Forex Trade Action

The ECB has finally grabbed the markets attention. Draghi's words this week have certainly hooked investor's interest for next month's meeting. Asset class should be expecting greater volatility right up to the next rate announcement and press conference.

Are investors being led down a similar path they took in March when Draghi vocally tried to undermine the EUR's strength? This time seems different as Draghi dropped very strong hints at possible policy action in June.

Focusing on three sets of possibilities while expressing the Bank's serious “concerns about the strength of the currency” has the market anticipating a refi rate cut at that meeting. It's clear that Draghi has abandoned previous ECB president's belief that the ECB never “pre-commits” – he noted if needed, that the committee had laid the foundation for action in June.

His fighting words have created a unique problem for Euro policy makers – Draghi has made it hard for the ECB not to come up monetary action on June 5th. A large percentage of the market has interpreted his comments this week as a sign for action. It's a reasonable assumption, but by no means a given. The question remains, what exactly will the ECB do?

There were no surprises from the Bank Of England. It left main interest rates (+0.5%) and the total size of its bond buying unchanged (£375m) at their first meeting since unemployment tumbled past a benchmark (+6.9% vs. +7%) that Carney and company had set out nine-months ago.

Attention now turns to the Inflation Report (May 14th) and the minutes of last weeks meeting (May 21st). Both should provide greater insight into UK's rate outlook. The market will also get a better insight to the dove/hawk scale.

After Draghi Talk EUR and Yields Fell – MarketPulse Can the ECB Talk Down The EUR? – MarketPulse S&P Revises Portugal Rating to Stable – MarketPulse UK Output Almost At Pre-Crisis Levels – MarketPulse Russian Victory Parade Timing Will Rub Ukraine The Wrong Way – MarketPulse Ukraine Refuses Russian Gas Price Hike – MarketPulse UK Manufacturing Grows 1.4 Percent in First Quarter – MarketPulse Pro-Russian Rebels Ignore Putin Command to Postpone Referendum – MarketPulse EUR – ECB Holds Rates at 0.25 Percent Despite Deflation Fears – MarketPulse GBP – Bank of England Holds UK Rates at 0.5 Percent – MarketPulse British House Prices Slow Slightly – MarketPulse Euro Bonda Fall On Ukraine Optimism – MarketPulse Greece Biggest Bank Confident on Economic Recovery – MarketPulse OECD Urges ECB To Act Soon to Avoid Deflation – MarketPulse Russian Banks Could Face 30 Percent Tax in US if Turmoil Continues – MarketPulse UK Service Sector Rises Reaffirms Recovery Trend – MarketPulse Italy Plans To Reduce Public Debt By Privatization – MarketPulse Group of Seven Agree to Find Alternative to Russian Energy – MarketPulse

WEEK AHEAD

 

* GBP Employment Change
* GBP Bank of England Inflation Report
* JPY Gross Domestic Product
* EUR Euro-Zone Consumer Price Index
* EUR Euro-Zone Gross Domestic Product
* EUR Euro-Zone Consumer Price Index
* USD Consumer Price Index

 

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Posted-In: Forex Economics Markets

Originally posted here...

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