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ECB and a new UK Prime Minister key this week

As the FOMC moves into the blackout period, the dovish extent of policy makers is a key question that traders are grappling with. The ECB is first up this week and is likely to be a key driver for markets this week. Brexit is also key with a new Prime Minister for the UK to be announced. We look at the impact on forex, equities and commodities.

ECB symbol building

Looser monetary policy from the world’s major central banks is already in full flow. Cuts from the central banks of Australia, New Zealand and South Korea have all been seen recently. However, in the next couple of weeks could the big guns also make their move? The Federal Reserve has been rolling out committee members and in a procession of the doves. FOMC chair Powell’s Congressional testimony drove expectations of Fed rate cuts soaring. Although US economic data has held up relatively well recently (payrolls, core CPI, retail sales, industrial production all improving), last week, voting centrists Williams and Clarida alluded to the Fed getting ahead of the curve, to cut as a pre-emptive move. Markets are no longer just expecting 25 basis points at the FOMC meeting at the end of July, but 50 basis points is now a 50/50 probability (something that we believe to be over-priced). This week though, it is the turn of the ECB to make its intentions known. It promises to be a hotly debated meeting of the Governing Council. Analysts are split over what the move will be. Perhaps before the flight of doves on the FOMC, the ECB could afford to keep its powder dry. However, if the Fed cuts after the ECB stands pat, this runs the risk of a jump in the euro, which would hamper the ECB’s attempts to stoke the fires of inflation. Draghi tends to be proactive in these situations. The risk is therefore a surprise cut of the deposit rate for the ECB rather than to just wait until September (which could lead to accusations of being too late). Expect euro volatility.

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At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.