Good morning traders.
So the wait is almost over and the FOMC will reveal all in a few hours time. Well, I say that, but the wait was really over yesterday when Draghi announced that further stimulus was very much on the cards to counter sub par inflation across the EU.
As soon as he opened his mouth in Portugal yesterday and uttered the words “(we will) use all the flexibility within our mandate to fulfil our mandate” the eurusd shot down and the Dax went on a ´roofer´. Sources ( ECB press relations ?) were out a little later saying that a rate cut would be the preferred weapon of choice.
I tweeted at the time that it wouldn’t be long before Trump was calling foul and that Draghi was manipulating the ex rate to gain unfair advantage of the US and boost the European indices. Sure enough almost his first tweet of the day was casting shade on Draghi and by doing so, piling further pressure on Powell to follow suit.
By the way some further pressure was piled on Powell when the news came out that the White House had considered the legality of ´demoting´Powell back in February. This is how far Trump is prepared to go to force through rate cuts and make sure he carries no blame should stock markets falter as he kicks off his re election campaign!
Thus, it seems Powell and his comrades are ´nailed on´to either cut now or in July and signal that they are prepared to do whatever they (Trump) see fit to protect the US economy (stock market). If he holds the line and indicates no cuts as US economic data suggests he should, who knows what may befall the poor guy, lol.
In another twist it was reported yesterday that a Trump Xi meeting has been scheduled for the G20 to discuss the trade issue. I suspect that we will eventually get a deal of sorts so Trump can ramp markets to infinity and beyond to support his re-election.
If I´m honest this is all a bit surreal. It seems that we are now entering a period of Twitter spat forward guidance and the independence of central banks is all but a thing of the past. The politics of populism and ever higher stock markets is all that matters.
So where does this leave us?
One would assume that with both the US and EU in accommodative mode (should Powell signal dovishness tonight) it wont change much as the divergence is maintained in a downward spiral of lower borrowing costs and easier money on both continents. However, any number of things could be ushered in in a race to the bottom.
If trade competitiveness is the main driver of central banks (and the level of key stock indices) rather than the prudent management of inflation/the economy things could quickly get out of control. Don´t forget that China is a major player in all this. Trade wars, tariffs, protectionism, tit for tat monetary policy, none of this is traditionally thought to be sound economic management! Where all this eventually leads I´ll leave to the paid up real economists – its way above my pay grade.
All we can do is keep a close ear to the ground, watch the charts and trade what we see!
The Daily chart
Nothing much to say until after this evenings FOMC. We look to be heading south and if Powell is not equally accommodative we could pick up further momentum and be testing the 1.10s in quick order.
The Hour chart
I have not posted S1 or R1 trade levels as we need to wait for Powell and or any further utterances from Draghi or his ´sources´. The plan for today is to be nimble at decent levels, scalp what sets up and make sure you are not committed until the dust settles.
That’s it for today. Tomorrow should be clearer (how many times have I said that ?) and watch out for Trump calling for Draghis head to stick on a spike next to Powell’s :)..
Have a good one.