Saturday March 7, 2015 - 12:55:00 GMT
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A USD Bull In A Market Of Limits -- March 8, 2015
ECB QE On Track
I mentioned last week that I felt that forex markets were starting to open up in time for Spring. Well I live in the Northeastern part of the U.S. while my forecast for forex has been working out well, my forecast for Spring has been running into a timing issue. On Thursday, the ECB met and, while no new decisions were announced, the central Bank Quantitative Easing (QE) remained on track to start this week. In response to QE, equity values for the German DAX, French CAC 40 and others have been rising, bond yields have fallen and the EURUSD has weakened. There has been chatter that U.S. equity investors have been moving into the DAX. Basis Thursday closes, in Euro terms, that index is up about 15% this year but the exchange rate has fallen by 12.5%. That would leave an unhedged U.S. investor with a net gain of only about +2.50%. This compares to roughly with +1.50% in the S&P. So unhedged funds moving from U.S. markets to Europe are only treading water this year. This could all change if the EURUSD could steady and the DAX can continue to improve. Ironically capital flows into Europe could support the currency. Although I am bullish on the USD. I feel we are in a market of limits.
Robust February U.S. Jobs
The solid February U.S. jobs report has me looking increasingly for late-July or mid-September Fed rate increase. There is no doubt that the central bank has been looking for an opportunity to start the return to a more normal monetary policy. I feel The first signal could be a removal of the word "patient" from the Fed statement on March 18. That would be tantamount to a policy tightening for the markets. In reality, a late-summer or early-fall 25bp rate hike would only be a token move. It won't change things at all. However, markets respond to appearances as much as to actions. These developments are USD constructive.
Weekly Calendar
The week ahead sees key Retail Sales data from the U.S. Also critical employment figures from Australia and Canada are due. A Reserve Bank of New Zealand policy decision is keenly awaited as well. 
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
www.global-view.com
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