The divergence between the American and Asian monetary policy deepens

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The last few days were not busy with macroeconomic events, but still the market had reasons not to remain steady. The Japanese and Chinese capital markets received support for the ascending trend as the People’s Bank of China lowered the reserve requirement ratio for all banks by 100 basis points to 18.5 percent. Also, market rumors emerged saying that this is only the beginning of a mature ascending tendency. On the other side, the need for monetary stimulus measures was again explained thru the first bond default by a state firm (a Chinese power-transformer maker). This is probably only the start of more defaults in China.

BOJ press conference for next week is also expected to bring tension to the economy as policymakers could cut the inflation outlook for the current fiscal year. Such a decision may trigger more monetary stimulus measures, leading to an Asian region dominated by a strong dovish policy. The capital markets have no way to go but up, while the United States may think twice before changing the current monetary policy parameters. The alignment of the global monetary policies represents an important pillar of financial stability, so it’s improbable to have the U.S. ignoring this aspect.

Meanwhile, in Europe, a market sentiment divergence raises questions. Yesterday, the German ZEW Economic Sentiment emphasized a more deteriorated sentiment of the German institutional investors and analysts as the indicator was reported down to 53.3 points. By contrast, the ZEW Economic Sentiment for the overall Eurozone increased to 64.8 points. May this divergence highlight a temporary slowdown of the German economy? (German Buba Monthly Report revealed expectations about the economic expansion to be slower than previously thought). Or it is more about a discrepancy generated by the uncertainty of the Greek situation? In any case, it stands out clearly that German speed starts to be decoupled from that of Europe (at least temporarily).

EURUSD barely resists above the 1.0700 resistance level, visible sensitive to news from Greece.

Another important event on Monday is the RBA Governor Glenn Stevens speech in New York. He clearly signaled the willingness to lower interest rates further while maintaining its descending outlook on the Australian dollar. On the other side, BOC Governor Stephen Poloz positioned its monetary policy decisions far away from another interest rate cut, while he expects the recovery of the Canadian economy to start in the second quarter.

AUDUSD is currently trading within the limits of the long term range (0.7900 – 0.7550). The current movement seems to be lead by the depreciation of the American dollar, while the testing of the 0.7800 – 0.7830 region and a rejection towards the local support (0.7600) zone may be a possible scenario.

USDCAD broke the lower limit of the range at 1.2352 and tested the 1.2085 low. After the market developed a positive correction, the price may resume the major descending tendency.

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