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To see an expanded version, right-click and select ‘open link in new tab‘. The indices show the performance of a currency vs a G8 FX basket.
The big story of the day, aside from the ECB policy meeting, which ignited punchy movements in the Euro, was the continuous hammering of the British Pound. The US equity space, after a promising start, ended up succumbing once again, which in turn assisted the likes of the Swissy, Yen and USD to be bought up.
With regards to the Pound, the selling can be single-handedly attributed to real fears kicking in in the Brexit front as the EU issued an ultimatum to the UK over its Internal Market Bill intentions. The EU didn’t like a bit the move by the UK to rewrite parts of the withdrawal agreement it signed in January, and either the UK withdraws the bill by the end of the month or it will face legal action.
The European Commission said that the UK had “seriously damaged trust” and trade talks were at risk. What’s most concerning is the fact that Cabinet minister Michael Gove said the UK is not willing to meet such expectations by saying that he had made it “perfectly clear” that the UK government “could not, and would not” change the bill.
As per the ECB, the policy settings was unchanged, leaving the deposit rate at -0.5% and equal levels in QE programmes. The ECB upgraded ever so slightly its growth projections as well as inflation forecast. No surprises there. Commenting on the EUR appreciation, Lagarde said “in the current environment of elevated uncertainty, the Governing Council will carefully assess incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook.”
Once Lagarde took the stage as part of the Q&A, the main take-away is that the ECB is unlikely over-react to a strong Euro, noting they are “carefully assessing” but without any strong wording that would suggest the levels it trades at are the main focal point to calibrate monetary policies in the short-run. The Euro did well for the most part of the ECB event and it finished the day close to being the top performer.
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In this video analysis I dissect the information above. Ultimately, it is the traders’ call, via a set of entries thoroughly backtested, to enter and manage a position, hence the video is intended as educational in nature and not financial advice.
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