Week Ahead: Rangy EUR/USD To Test The 'Draghi Put'
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We are worry that investors have got ahead of themselves wishing for helicopter money in Japan. Indeed, such a policy would likely necessitate legislative changes and political commitment that go well beyond the current Abenomics plans.
Investors may be correct in assuming that dovish is the default setting of the global central banks, and we think that next week’s ECB meeting will reiterate the view that the ‘Draghi put’ is firmly in place. That said, we also believe that easier global financial conditions post Brexit and improving US data give the Fed an opportunity to normalise rates before long. Any indication of that in the coming days may come as a rude awakening for the markets, which see no rate hikes before 2018.
EUR/USD should remain range-bound, caught between easing Brexit fears and persistent policy-divergence headwinds.
We remain bullish on USD against CAD and NOK as we expect the oil outlook to deteriorate further.
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