If you read my most recent DXY analysis posted in the page, you will see the reasons I am bullish on the dollar for the next couple of weeks. But what goes around comes around soon after.
The ECB rate hike cycle is about 6 months behind the Fed. So what we are seeing now with the market is they are only focusing on Fed policy for FX, which as their cycle finishes, we will transition to ECB rate hikes to still be fulling on track. There will be a period where the market only focuses on the ECB pause and pivot.
Because they are behind us in the tightening cycle, their focus is on how hawkish can they be and not about the consequences. Where as in the US, we are well beyond peak hawkishness, and the conversation is not about the consequences of all the rate hikes and recession talk. That conversation about consequences and when to stop for the ECB will begin over the summer, and will drag EUR lower.
but for now, that divergence means smooth sailing higher for euro. Especially now that they navigated the Deutsche Bank and Credit Suisse mishap
The ECB rate hike cycle is about 6 months behind the Fed. So what we are seeing now with the market is they are only focusing on Fed policy for FX, which as their cycle finishes, we will transition to ECB rate hikes to still be fulling on track. There will be a period where the market only focuses on the ECB pause and pivot.
Because they are behind us in the tightening cycle, their focus is on how hawkish can they be and not about the consequences. Where as in the US, we are well beyond peak hawkishness, and the conversation is not about the consequences of all the rate hikes and recession talk. That conversation about consequences and when to stop for the ECB will begin over the summer, and will drag EUR lower.
but for now, that divergence means smooth sailing higher for euro. Especially now that they navigated the Deutsche Bank and Credit Suisse mishap
