Glimmer of Hope on Trade Wars, Recession, and Monetary Policy Capitulation?

2019-09-11 08:07    John-Kicklighter

Fundamental Talking Points:

  • Heading into Monday trade, a cautious bump in enthusiasm seemed to carry over from last week's questionable trade war relief
  • Event risk will offer limited charge in trade wars but headlines are an ever-present threat - as they will be with waylaid recession fears
  • Top volatility risk ahead is the ECB rate decision which will move much more than the Euro, DAX and Bund as one of the move dovish groups

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This is the recording of the Weekly Fundamental Trading Forecast webinar that is conducted on Mondays.

The opening week of the new month and quarter brought with it the precursor winds of more substantial liquidity and an otherwise engaged market. As we have entered this second week, there remains the range of high-level fundamental threats that the markets have otherwise absorbed warning signals on without succumbing to the risks that each have posed. Yet, it will be increasingly difficult to ignore flare-ups when market depth fills out and speculative interests are ready to response to whether the cues are for greater enthusiasm or finally catch traction on latent fears.

This past week saw the heavy sway of trade wars and recession fears cool in terms of influence. The US and China introduced new tariffs against the other on September 1st and hold out expectations to escalate further come mid-December. Nonetheless, market participants seem willing to commit their faith on next steps to the questionable promises made by officials on both sides. Despite their latest move and holding out the next steps very publicly, they have voiced optimism that a compromise - really expectation that the other side will capitulate - will be found. It is surprising the market is willing to take them at their word considering we have seen the same statement made and reversed numerous times over the past months. As for the economic concerns, the headlines seem to have found 'yield curve inversion' fatigue - likely a by-product of direct growth readings (GDP and PMIs) not on the docket for a spell. Yet, both of these themes carries extraordinary influence and can readily explode with little warning.

Top fundamental theme this week that can amplify errant headlines or related event risk alike will be monetary policy. The European Central Bank (ECB) rate decision on Thursday is a global event. As one of the most dovish major central banks in the world, its intention to escalate its already extreme support can inform what kind of external source of growth and competitive policy efforts we could see moving forward. With the Fed, BOE, BOJ and SNB on tap the week after, what Europe's key policymaker does this week will spillover into considerable influence ahead.

If you want to download my Manic-Crisis calendar, you can find the updated file here.

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