Market Analysis

Еuro gains ground against the dollar ahead of surprise ECB meeting

FOREX

The euro posted gains against the dollar during early Wednesday trading, following the surprise announcement of an unscheduled ECB meeting, which is due to happen later today. The single currency gains versus the dollar are worthy of notice, as the markets are now pricing in a 75 basis points rate hike in the US, meaning that investors really weren’t expecting the European Central Bank to meet again so soon after last week’s gathering. The likelihood is that this unscheduled meeting is related to the widening in the spreads of peripheral bond yields, so it will be interesting to see how the ECB plans to coordinate the taming of inflation, on one hand, and maintain some mechanism to protect the rises in yields on the periphery of the eurozone; especially as the Frankfurt institution has previously equated the beginning of monetary tightening with the end of its asset purchases. In any case, this morning’s euro gains aren’t in any way guaranteed to last; it is possible that, whatever rabbit the ECB is planning to pull out of the hat, it may not be sufficient to impress the markets. And we must not forget that later in the day the Fed will announce its rate decision, with an outside chance of it hitting 100 basis points, a scenario that would definitely pull the rug from under the euro’s feet.

Ricardo Evangelista – Senior Analyst, ActivTrades

Source: ActivTrader

 

GOLD

Gold prices hedged up during early Wednesday trading but remained close to the multi-week lows touched during the previous session. The precious metal price has recently been closely linked to that of the US dollar, with which it has a strong inverted correlation, as well as to the behaviour of bond yields; against this background, today’s gains can be explained by the easing in Treasury yields, and a dollar that lost some ground in relation to its peers, as the markets pause for breath ahead of the Fed’s rate decision later today. With a 75bp rate hike already baked into the value of the greenback, investors will now sit back and wait for the announcement from the US Central bank; however, it is very likely that gold prices will remain under pressure, as the non-yielding metal loses appeal due to the tightening of monetary policies by central banks as they move to bring inflation under control.

Ricardo Evangelista – Senior Analyst, ActivTrades

Source: ActivTrader

 

EUROPEAN SHARES 
European stocks climbed on Wednesday, alongside treasuries, after the ECB surprisingly reassured investors. The announcement of an unplanned meeting from the European Central Bank, to tackle extremely volatile market conditions, came as a wind of relief to many investors. This surprising move from the ECB comes in contrast of what is currently happening in the US, where the switch from dovish to hawkish monetary policies from the FED has seriously dented risk appetite and sent bond markets spiking in an uncontrollable fashion. Investors are then welcoming the fact the ECB is willing to keep stability in credit markets, ahead of withdrawing stimulus measures in the Euro area.

Of course, traders are likely to wait and see what is going to be officially announced (measures and roadmap) by the ECB before bringing more directionality in the stock markets, however, the fact market drivers may already be changing is perceived as a major development for EU stock investors. All EU benchmarks trade higher today, with the best performance being brought by Madrid and Milan, where the FTSE MIB is heading towards its first short-term resistance at 22,500.0pts.

Pierre Veyret– Technical analyst, ActivTrades

Source: ActivTrader

 

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