Dovish Draghi Priced In? Gold Soaring, Cryptocurrencies Bore

Dovish Draghi Priced In? | Gold Soaring & Cryptocurrencies Boring

Everyone Expects Draghi Would Adopt Extra Caution

US Treasury secretary, Steven Mnuchin advocates that the lower dollar is good for the US. Forex traders have taken one clear message from his statement that the stage lights have gone even brighter for the European central bank’s president, Mario Draghi. Investors are expecting him to be extra dovish now because if he doesn’t adopt an overly dovish tone, it would provide more tail wind for the euro. The euro has surged nearly five percent since December and this much strength in the currency puts the ECB’s hard work under jeopardy.

Draghi would have to adopt a delicate approach and seek a strategy which stops the euro from firming further. The only way out of this situation for him would be to emphasize that the process of the rate hikes is not within sight yet. The market is expecting a rate hike in 2019 from the ECB, Draghi would have to pull a rabbit out of hat in order to convince the market that rate hike isn’t on the agenda and market participants are getting ahead of themselves.

Update: What is Priced In & What Isn’t?

We do think that overly dovish statement by the European central bank is priced in the euro to some extent. If Draghi fails to convince the market or if he doesn’t sound as dovish as the market is expecting, we think that the euro can take off from here. I think the risk to the downside for the euro are limited, it is the upside move which would be more exciting.

Gold

The precious metal has continued its rally and a close above 1350 would encourage traders to buy any pull backs. Bulls are clearly enjoying the weakness in the dollar which is driving the rally for the precious metal. Having said that, we do think that that there are some concerns about the trade war and it could become ugly. Our investors want to hedge against that uncertainty hence they are favouring gold.

Cryptocurrency

Not much action for the cryptocurrency markets, Bitcoin is still struggling to find a clear direction and the overall move is consolidating. The containment of the bulls may be a result of the ban on anonymous crypto trading by the South Korean government due to materialise on the 30th January.

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