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Does Hitting ECB, BoJ Limits Mean Clear Euro, Yen Gains Ahead?

Does Hitting ECB, BoJ Limits Mean Clear Euro, Yen Gains Ahead?

2016-04-22 00:37:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

  • The ECB reflected on its previous massive stimulus upgrades at its April 21 meeting rather than add more
  • Both the ECB and BoJ are closing in on the practical limits of accommodative monetary policy
  • If an active central bank push has peaked, are the Euro and Yen naturally set for significant gains ahead?

See the DailyFX Analysts' 2Q forecasts for the Dollar and Euro in the DailyFX Trading Guides page.

The last two major upgrades in ECB policy (December and March) led to unexpected Euro gains and capital market losses. That seemed to contradict the theoretical relationship between monetary policy and speculative positioning. So, what happens when the market is more confident or even certain that the limits have been reached? Will the significant devaluations levered against those currency's where easing was most prevalent post natural and persistent rallies? While both the Euro and Japanese Yen have seen significant pressure in the rise of their respective central banks' easing efforts, the linear relationship of 'dovish policy, bearish currency' does not ensure the reversal is certain. A relative value market see fundamental influence wax and wane as circumstances change. And, the limits of the doves does not ensure the running of the bulls. We focus in the Euro and Yen as policy shifts in today's Strategy Video.

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