Breaking News
0

Euro Outlook And The Fed Is Sending An Interesting Message

By Kathy LienForexAug 22, 2019 06:19PM ET
www.investing.com/analysis/euro-outlook-and-the-fed-is-sending-an-interesting-message-200457752
Euro Outlook And The Fed Is Sending An Interesting Message
By Kathy Lien   |  Aug 22, 2019 06:19PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Kathy Lien, Managing Director Of FX Strategy For BK Asset Management

Daily FX Market Roundup August 22, 2019

No one is buying euros because they are worried about the political situation in Italy, the possibility of a recession in Germany, the prospect of aggressive easing from the European Central Bank and the ongoing risk of more tariffs from the US. This week, Italy’s Prime Minister Conte resigned, turning crisis into chaos for the Eurozone’s third largest economy. Of all the euro’s troubles, Italian politics has the most limited impact on the currency. Europe is no stranger to Italian political uncertainty (they just had elections in 2018 and who can forget Berlusconi’s countless scandals) and this crisis was a long time coming. Instead of rising, Italian bond yields fell because investors are hoping that the new government will be more pro business. Talks have already begun to form a majority in Parliament, which could hopefully pave the way for a smooth transition for Matteo Salvini who is widely expected to become the new Prime Minister.

Recession on the other hand is a serious risk for Germany. According to the Bundesbank, Germany’s central bank, the country could very likely fall into a technical recession in the third quarter. Last week they predicted that GDP “could continue to fall slightly.” Growth has been weak for the past year as the country grew only 1 out of the last 4 quarters. Unlike Italy, Germany is a serious problem for the Eurozone. As the region’s largest economy, their slowdown will be felt across the continent. Although we learned last week that German and EZ PMIs rose in the month of August, the uptick in activity won’t stop the European Central Bank from easing. Industrial production is weak, investor sentiment is weak and there’s a good chance that the upcoming German IFO business confidence index will decline as well. Auto sales have taken a big hit and fears of further tariffs along with a disorderly Brexit are mounting. Just this past week, US lawmakers urged the Trade Representative’s Office to hold off imposing new tariffs on European olive oil. In November, the Trump Administration will decide whether to impose duties on European autos. With all of these risks in mind, the European Central Bank will have no choice but to ease next month and they could deliver a bigger than expected stimulus package. This prospect will keep EUR/USD under pressure and pave the way for a move below 1.1050.

Meanwhile the Federal Reserve is really going out of its way to downplay the need for easing. According to the FOMC minutes, most Fed officials saw the July rate cut as a mid-cycle adjustment and not the start of an aggressive easing program. Since then comments from policymakers such as Mester, Rosengren, George, Daly and Harker suggest that they may not support another rate cut. On Monday, Rosengren said the US is in a good spot right now and there is no need to take action if their outlook stays on track. He stressed that the Fed doesn’t have to ease simply because other countries are weak. On Tuesday, Fed President Daly said she supported the July cut but sees the labor market as strong and consumer spending Fed President George seems to agree – she said just this morning that she’s not ready to provide more policy accommodation without seeing evidence of a slowdown. Like Rosengren, she the described the economy as in a good place. Fed President Harker admitted that he reluctantly supported the July rate cut and felt that “we should stay here for a while, see how things play out.” So while President Trump wants the Fed to be proactive and has taken every opportunity this week to lay on the pressure, US policymakers don’t seem onboard with the idea. If that’s true, it would be significantly misaligned with market expectations because according to Fed fund futures, traders priced in 100% chance of easing next month. Now its all up to Jerome Powell to clear the air, he’s speaking at 2pm on Friday and the tone of his speech could determine the direction for the dollar in the weeks ahead.

Euro Outlook And The Fed Is Sending An Interesting Message
 
Euro Outlook And The Fed Is Sending An Interesting Message

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments
Dragon From_Balkans
Dragon From_Balkans Aug 24, 2019 12:50PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
for two last weeks, you talk about eurusd below 1.10 !!!  I guess the next two weeks you will talk about price above 1.13 !!!!  :-)
Kevin Avila
Kevin Avila Aug 23, 2019 2:21AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Start in esting in every asian country that isn’t China they are going to have an economic boom...
Kevin Avila
Kevin Avila Aug 23, 2019 2:11AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
No rate cut
Adam Berzsenyi
FeketeMagyar Aug 23, 2019 1:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
2pm? I thought it Powell was 10am
Ugyen Penjore
Ugyen Penjore Aug 23, 2019 12:47AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Any thoughts on how it may impact emerging markets currencies, especially MXN?
Joseph Loud
Joseph Loud Aug 22, 2019 9:41PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
No baby bottle coming - totally unnecessary - CPI is creeping up - Markets should adapt to a sober reality and stop dreaming that the FED will save their bets - SPY back to 2600 - Italy is not a big deal ; Salvini is a pro-business conservative . Germany is a bigger problem . Agressive QE by BCE is needed - Euro down to 1,08 ( last gap to be covered ) . So US $ much higher . Gold stay neutral after the run-up . Hong-Kong protests even bigger problem . China will suppress it violently . Hang Seng down 10% .
Tèo Phan
Tèo Phan Aug 22, 2019 9:08PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks
Eric Hong
Eric Hong Aug 22, 2019 6:42PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Also I think JPow is speaking at 10am ET / not 2pm right?
Donald Dump
Donald Dump Aug 22, 2019 6:42PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
That's what I thought too
Eric Hong
Eric Hong Aug 22, 2019 6:31PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Good read - typo on “, she the described the economy...”
Hughie Quigley
Hughie Quigley Aug 22, 2019 6:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
so what happens if the fed does make a rate cut? will stocks decline? and since it's already priced in, if there is no rate cut will stocks jump?
RW Reynolds
RW Reynolds Aug 22, 2019 6:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
if the Fed doesn't cut and signal a cut in September, 2750 SPY
Stacey Beam
Stacey Beam Aug 22, 2019 6:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Honestly, it go either way. Easing could signal recession, not easing will drop the market massively. Theres more downside risk than upside. If a cutting cycle is signaled, stocks will skyrocket. Step right up and place your bet.
Mark Smekhov
Mark Smekhov Aug 22, 2019 6:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Stacey Beam "Easing could signal recession" and "If a cutting cycle is signaled, stocks will skyrocket" sounds controversial
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email