We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Mixed
Wall Street
Bullish
Gold
Bearish
GBP/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • The trio of central banks overseeing the commodity currencies have already cut their main rates to all-time lows. Get your market update from @CVecchioFX here: https://t.co/OSUXrN5P3j https://t.co/3nwDel6e28
  • The tension from March continues to subside, allowing for the $USD to slide to fresh two-month-lows. Get your currencies market update from @JStanleyFX here: https://t.co/bRSRjUqg6Z https://t.co/Q35YpIZEd2
  • López Obrador hopes #USMCA will help tighten trade relationships between the US and Mexico. Get your currencies market update from @HathornSabin here: https://t.co/bZrUKSCGaS https://t.co/MZ7UoiWWRj
  • The $AUD may suffer as relations between Australia and China deteriorate amid dwindling growth prospects. Euro traders will be closely watching progress in talks about a €500b recovery fund proposal. Get your market update from @ZabelinDimitri here: https://t.co/LkEFJViPWY https://t.co/sofO135ElG
  • The US Dollar could rise against #ASEAN currencies such as the Singapore Dollar as US-China tensions seem to escalate. The Indian Rupee is also looking ahead of local 1Q GDP data. Get your ASEAN currencies market update from @ddubrovskyFX here:https://t.co/LkEFJViPWY https://t.co/ZGFaQQ3Hr2
  • The #Euro is the big driver here for DXY as it is 57% of the index. It is rising now and trying to break above the March 27 high at 11147. Get your $EURUSD technical analysis from @PaulRobinsonFX here:https://t.co/6gt3F9LuGP https://t.co/73SaL5AeXD
  • U.S. Market Analyst at https://t.co/JsVsSmefgR, Shain Vernier covers - ✔️ Safe haven assets in volatile markets ✔️ Central banks and governments ✔️ How will commodities trade in a recession Only on Trading Global Markets Decoded #podcast. Tune in here: https://t.co/1UmEzEbwiy https://t.co/EIC9YqfTec
  • Anybody else think that casting directors in movies are some of the most underrated people when it comes to giving a film/series credit?
  • No https://t.co/EoBltaP17k
  • Crude #oilprices may face heightened liquidation pressure as the cycle-sensitive #commodity finds itself under the pressure of resilient resistance and a vulnerable, multi-week rising channel. Get your crude #oil market update from @ZabelinDimitri here: https://t.co/cGPX4qcOH1 https://t.co/0U4JMJVFuf
Is Monetary Policy Regaining Control in EUR/USD, USD/JPY Trends?

Is Monetary Policy Regaining Control in EUR/USD, USD/JPY Trends?

2016-12-21 03:15:00
John Kicklighter, Chief Strategist
Share:

Talking Points:

  • From 2010 to 2015, monetary policy was one of the dominant drivers for trend and volatility in the FX market
  • With many of the world's largest central banks pursuing major stimulus programs, pairs like EUR/USD lost traction along stimulus lines
  • Traditional monetary policy skew trends on pairs like EUR/USD and USD/JPY seem to be reengaging - has this theme returned to prominence?

See how retail traders are positioning in the majors using the DailyFX SSI readings on the sentiment page.

After markets put in their bottom following the Great Financial Crisis (GFC) plunge, we witnessed a rise in fundamental influence via monetary policy channels. In a world unstable due to extreme volatility and struggling for growth, the exceptional steps towards open-ended stimulus programs represented a significant change in financial condition and value. From the Federal Reserve to the European Central Bank to the Bank of Japan, the world's largest policy groups ramped up support for their respective economies and markets to return their economies back to stable footing. A side effect - and for some, a thinly-veiled target - of these programs was a clear response from the local currencies. Cutting rates to zero or even negative levels and building remarkable stimulus programs flooded the system with the operative currency which translated into substantial depreciation.

Substantial declines from the US Dollar in 2009, Euro in 2010 and Japanese Yen from 2012 to 2014 were all heavily influenced by their associated monetary policy authorities opening the tap on massive easing programs during those periods. The connection between catalyst and market response was clear and formidable. However, this influence seemed to wane to the point of seemingly reversing response over the past two years. Perhaps the best example of this shifting influence was EUR/USD. In 2014, the ECB attached monetary policy to a particular level in the key exchange rate through an inflation concern; and the pair responded in kind. The drop from 1.4000 to 1.0500 was extraordinary. Even more so was the maintenance of that range's floor when the ECB actually introduced its open-ended QE program. The height of confusion and contradiction in this fundamental drive was the EUR/USD's rally afer the European central bank substantially escalated its stimulative efforts last December and March this year. It seemed that one of the most decisive and comprehensive fundamental drivers in the market had broken.

Yet, just when traders were ready to given up the on using divergent monetary policy bearings as a filter for trend and trades; we have seen revived progress from EUR/USD and USD/JPY. The former has broken two year's of range to trade at 14-year lows and the latter has shown its strongest three-month charge in over two decades. These fall back into line of the previous fundamental channel, but is that happenstance or design? To answer that, we have to understand why this fundamental theme developed such remarkable sway in the first place. Principle to the momentum was the reality that these programs were unique and drew clear contrast to other currencies' and policy programs. Currently, there is more competition than there is divergence. Does that prevent this driver from regaining control over FX trends? No. But, what are the cues we need to watch for? We discuss that in today's Strategy Video.

Is Monetary Policy Regaining Control in EUR/USD, USD/JPY Trends?Is Monetary Policy Regaining Control in EUR/USD, USD/JPY Trends?

To receive John’s analysis directly via email, please SIGN UP HERE

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.