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The ECB is positive about its strategic review

The ECB is positive about its strategic review

Europeanmarkets are trading higher and investors are partaking in riskier assets on theback of the European economic data which was somewhat positive. The Frenchflash services PMI printed a stronger reading of 51 against the forecast of50.4.

Europeanmarkets are trading higher despite the fresh warning from the credit ratingagency, S&P, it issued a caution about Chinese economic growth. The agencyhas warned that if the virus situation continues to worsen, it could easilyshave-off 1.2 percent points from Chinese economic growth.

Thisparticular statement has made investors to asses the risk associated withCoronavirus. 25 people have died and 830 are infected. China has extended thetravel ban, nearly 11 cities with a population equivalent of Canada have beenrestrained from traveling. These efforts are made in order to ring-fence theoutbreak of coronavirus but we think it is nothing more than a Band-Aidsolution. The fact is that we do not know much about this virus, and there isno vaccination or cure yet makes it dangerous. More importantly, we are noteven sure how to turn it off. This makes the situation scary. Having said this,the WHO still maintains its stance that the outbreak doesn’t really constitutea global threat and this is kept nerves calm over on Wall Street.

The USstocks continued to talk with its record high but closed shy of these levels.The S&P500 index climbed 0.1% While the NASDAQ index gained 0.2% but theDow index fell by 0.1%.

All Eyeson UK PMIs

In thecurrency markets, it is all about the PMIs data. Let’s begin with the Britishpound. It is likely to see a higher volatility today due to the upcomingeconomic data. The purchasing managers’ index for the UK has been touted as apotential game-changer for the Bank of England’s interest rate decision. Themoney market is expecting a 60% chance of a rate cut by the BOE on January 30th

The flashmanufacturing PMI and the services PMI are expected to print 48.8 and 51.1respectively. The data is likely to impact and the currency and the gilts.

The oneweek implied volatility for Sterling has increased and touched the highestlevel since December. In simple terms, a one-week risk reversal confirmed abullish sentiment for the British pound that is not seen in nearly 2 months. 

What IsMore Important? Trade War Or The ECB Policy

It wasn’tthe ECB’s monetary policy decision which took the center stage yesterday; fearof a trade war between the US and the EU impacted the price action of the Euro.The European Central Bank left the policy unchanged (as expected) yesterday andthe reaction of the Euro on the back of their monetary was immensely boring.

Strategicreview Doesn’t Mean Agreement

Basically,the ultra-loose monetary policy remained unchanged yesterday as the presidentof the European Central Bank took the stage for the second time. She promisedthat the bank will examine its policies and if it should alter its 200 billionEuro corporate bond holding. She wants to factor in climate change in thebanks’ policies. Miss laggard has set out an ambitious framework along with thedeadline for this review which is December.

Thedeadline for her strategic review of the monetary policy is not only going tokeep her in hot water, but it is also going to trigger bruising debates on thedivisive issues.

The fact isthat laggard has an ambitious agenda and we anticipate only minor changes dueto the compressed timetable. The division among the policy member is amomentous challenge, thus one needs to fine-tune their expectation with respectto the strategic review. This is because a review doesn’t mean a resolution.For this to work, you need an agreement among all parties and this is thebiggest obstacle.

Gold SetTo Finish The Week Higher

Gold priceshave come off from their highs on Friday but set to close the week in positiveterritory. The WHO’S assurance has made investors bid for riskier assets.

Technically speaking, the current pullback in the gold price looks like an opportunity to buy, the price is still trading above all the major moving average, 50, 100 and 200.  This confirms that the bulls are in control of the price action. The current support level is at $1,504, this is where the 50-day smooth moving average is. The resistance is capped by the previous high of $1,611.