A sharp slide in capital markets reflected a strong 'risk off' mentality into the close of this past week. Will cooler heads prevail ahead or was that the next move to escalate a bigger shift in sentiment?
The Dollar still carries the glow of last month’s Fed hike and there is a new – and traditionally favorable – wind blowing in the currency’s favor: risk aversion.
It appears rather unlikely that the ECB will act again this week, but with risks to the ECB’s inflation forecasts growing by the day, we wouldn’t discount Draghi & co. keeping markets focused on March.
Even though the Bank of England (BoE) meeting revealed another 8 to 1 split within the central bank, the British Pound may face additional headwinds next week and extend the decline from earlier this month should the fundamental developments coming out of the U.K. drag on interest rate expectations.
The Japanese Yen finished the week sharply higher against most FX counterparts and remains the top-performing major world currency through 2016.
The Australian Dollar faces another week of sharp volatility ahead as risk sentiment trends gyrate with the passing of key event risk from China, the Eurozone and the US.
The New Zealand Dollar continues to display a tight relationship with the bigger overall macro-theme of China and the larger overall threat of an Asian slowdown.
A Bank of Canada rate cut is now the preferred bet as the Loonie seems in near free-fall.
Gold prices retreated this week with the precious metal off by more than 1% to trade at 1090 ahead of the New York close on Friday.
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