ECB BULLETIN, US DOLLAR – TALKING POINTS
- ECB Economic Bulletin publication may spook markets
- US Dollar may subsequently capitalize on risk aversion
- Specter of trade wars and slow growth haunting Europe
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The US Dollar may extend gains against the Euro if the ECB’s publication of its Economic Bulletin spooks markets and sends investors running into the open arms of the highly-liquid US Dollar. Using the words of ECB President Mario Draghi, the growth outlook for Europe continues to get “worse and worse”. The Bloomberg Economics Euro Area Uncertainty Gauge is at its highest point since the Eurozone debt crisis.
“Despite the somewhat better than expected data for the first quarter, the most recent information indicates that global headwinds continue to weigh on the euro area outlook. The prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, is leaving its mark on economic sentiment.”
Furthermore, inflationary prospects continue to look dim as the Euro 5Y5Y Euro inflation forward swap continues to hover at alarmingly low levels. An escalation in the US-China trade war is expected with Beijing likely readying to utilize various weapons in its economic arsenal that could throw markets into turmoil. Amid this uncertainty, the US Dollar would likely catch a haven bid at the expense of the Euro and anti-risk assets.
Increasing fears of a no-deal Brexit and a possible resumption of political risk out of Italy – again – may pressure the Euro. Furthermore, Iran-EU tensions are escalating and threatens to widen the rift between Brussels and Washington. Officials in Tehran warned European officials that unless they are able to mitigate the impact of US sanctions, Iran will further reduce its compliance with the 2015 nuclear agreement.
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CHART OF THE DAY: EUROZONE UNCERTAINTY GUAGE COULD CLIMB HIGHER IF DOWNSIDE RISKS GROW
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter