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EURUSD squeeze on overly dovish FOMC? French election woes abound
In this video, Yvette Roper, Editor of TradingFloor.com, interviews John Hardy, Head of FX Strategy Saxo Bank, about the all-important Federal Open Market Committee meeting and in particular expectations for growth, inflation, rates and quantitative easing. He also discusses the French presidential elections and the negative implications for the Eurozone.
The FOMC outcome will generally be dollar supportive if the market is where I think it is – expecting a rather dovish FOMC and a rather non-committal response, says John. In terms of the EURUSD there’s a risk of even a squeeze higher (but no run away rally short-term) if the FOMC is more dovish than I expect.
Regarding Fed forecasts, he sees the unemployment rate being lowered a bit and inflation rising due to indicators having moved higher recently. In terms of further quantitative easing though he expects Chairman Ben Bernanke to back his dovish views while still showing concern about some worrying issues and the willingness to act if needed.
We need a few more months of bad data points, especially on the unemployment side, and markets to be in really bad shape before we see the Fed going into more QE, especially considering the political sensitivity ahead of November elections, says John.
In terms of politics elsewhere, the French presidential elections are receiving much attention. John goes as far as calling it the “last nail in the coffin”, particularly considering the German desire to see fiscal discipline and the Dutch Government dissolving on the inability to form a coalition around austerity measures. If Francois Hollande, who took the lead in the first part of the election goes all the way and become president then the march against austerity will continue. It will mean a lot of uncertainty going forward especially for German politics and Chancellor Merkel’s position and we may even see elections there ahead of schedule. The rapid rise of Marine Le Pen from the far-right is also adding to Eurozone concerns. Sarkozy is seen using some of her rhetoric to win over some votes though pulling off victory is doubtful, says John.
What it all means for euro-dollar short-term is difficult to say. Eventually EURUSD will head lower but it’s been wishy-washy in a range up to now, he says.
See more of John's commentary on TradingFloor.com
05:59 minutes
Tags: bernanke, eurozone, eurusd, fed, fiscal pact, fomc, french election, hollande, john hardy, johnjhardy, le pen, reutersforex, sarkozy, tradingfloor.com, unemployment, uscpi, usgdp, yvette roper