Financial markets seem to evolve in a well-defined system which deeply depends on the evolution of interest rates around the world. Here are the most important pillars of this system:
- The Danish central bank cut their deposit rates to negative 0.5% for the third time in less than 10 days in order to defend the krone’s peg to the shared currency;
- New Zealand’s Kiwi is trading close to 0.7280 against the USD (RBNZ decided to maintain the interest rate at the current level of 3.5%, but is ready to consider a more dovish policy) while AUDUSD is situated in proximity of 0.7790, both currencies following descending paths as their economies are expected to cut their interest rates;
- Bank of England is consistently postponing the moment of change in its monetary policy parameters after last year it promised to raise the interest rate ahead of the United States;
- Turkey’s lira is falling amid speculation it may cut rates;
- The euro currency is weakened by the QE program;
- The Scandinavian nation has an exchange-rate agreement with the ECB, which is pushing the central bank to modify its monetary policy.
That being said, the divergence is obvious. Only the Fed is considering an interest rate increase, which is expected to come by April 2015 based on the hints given by the Fed Chairlady Janet Yellen. What consequences should we expect from this divergence? Well, the American dollar has reasons to continue its appreciation trend while weaker economies will have their currencies decreasing. On Wednesday, the FOMC group decided to maintain the interest rate and the patience attitude while the jobless claims plunged by 43,000 to 265,000, the lowest since April 2000. The American capital market may currently searching for the most appropriate moment to start a long-awaited correction.
The Swiss franc has an extremely interesting evolution and appears to be offering significant investment opportunities. Since the 23rd of January, we have observed corrections taking place in the price charts of both EURCHF and USDCHF. It seems like the SNB is considering weakening its currency and this episode of correction is not finished yet. EURCHF is trading at 1.0430 while USDCHF is approaching the parity. There is still place for the Swiss franc to depreciate.
The oil market is approaching the bottom of the descending trend. The WTI oil price fell to the 43.57 low as the American inventories are constantly increasing. On the other side, the Brent oil has a more tempered evolution, which is currently placed below the resistance level of 49 dollars per barrel. The price of both types of oil is finding it more difficult to continue the descending path and is most likely to further develop into a lateral movement in anticipation of changes in the fundamental nature.
Gold, which is following a strong descending path, found an important resistance level to the 1306 dollars per ounce and technically speaking it may start a new impulse in the decreasing path which will lead the price of the precious metal close to the 1200 support level.
Today’s 1st estimate of US Q4 GDP is expected to indicate a slowdown in the American economy from 5.0% QoQ to 3.0%. Hence, we could expect the USD losing some ground to its counterparts.
For now we can just trend has been very good friend for the last couple of months as we have had a clear trend, and it seems that it seems to be continuous.