The Policy of Reshuffling of Active "Ifs"

Euro-QE optimists, again, are waiting for 22 January culmination
The market is still proving that no economy can be adapted to a scenario that is suitable for everyone. The year that began was advertized as the year of modification of interest rates and monetary tightening; however, some factors keep on emerging successfully shifting main issues to indefinite terms. If falling oil prices make politicians feel shocked, and the business is trying to invest savings obtained from petrol prices in production, then analysts who join the game and begin to actively intimidate us with inflation, debts, and low salaries.

Euro-QE optimists, again, are waiting for 22 January culmination; however, informational background for rescheduling serious decisions is already underway. It is beyond doubt that Draghi, who will be speaking on Thursday has already prepared a set of "ifs" for a new delay. If everyone understands correctly the risks of overly strong dollar growth and incredible fall of euro, we need to wait for serious adjustment. If the decision regarding QE launch is not made, euro will go upwards, at least, by a couple of figures. Europe, in the attempts to tame Greek pre-election passions, supported the global restructuring of the Greek debt, and the "forgiveness" can make from 30-50% of the whole amount. If even this helps keep Greece in the UE, then the same debt speculations by other EU problematic countries are guaranteed to ECB. Not even waiting for the implementation of the last "if", large banks have already been taking emergency action plans out of archives; they were prepared a couple years ago in case Greece did leave the EU, and they are beginning to check counter parties that can suffer the first; then they will test the integrity of their payment systems and capital control systems in case drachma is brought back. It is clear that, in such situation, monetary tightening looks especially out of place and unpopular.

Euro has lost all its points gained from contradictory NFP, and today's side-movement at key level 1.1800-1.1850 presents no trading interest until some fundamental comments are published. Asia has shown, once again, that currency's dependence on bad statistics is little, if the issue is not about the currency but about its reliability. Even keeping in mind that the inflation of Japanese assets is still continuing and consumer inflation is close to zero, yen can grow again against the background of planned commotions in Europe. Yen was bought out actively in any crisis, and the price now is more than attractive; and the role of financial haven is not forgotten yet. That's, of course, if BOJ eases the tone of its policy; moreover, it has not produced any tangible results yet. And that is if today's destruction of the national currency is not a part of a global and, hitherto, unknown political game. It is dangerous to work with net yen against this background, we can try to buy yen against euro from 141.50 and below.

Speculations with American rates continue: this is served as a "bad idea" now; analysis includes the level of public trust, price stability requirements, and 2% inflation is considered as unreachable. The idea of increase was played around with, while dollar was pulled upwards; raw materials were devalued, and annual reports were made, while, simultaneously, attempts to put pressure on China were made through mutual trade volumes. December NFP information has the only good thing - its facade; and behind it, under good employment growth rate values, the data on types of salaries is falling critically (-0.2% December, -1.9% - per year), the situation is very bad in high-tech and production industries.

The set of the negative issues as the condition for additional "ifs" has again moved expectations regarding rates to June. Speculators still have time. Currencies immediately used contradicting report data as a chance to go above the habitual minimums. And, nevertheless, a hectic time is coming for dollar: we are waiting for retail sales, industrial production, and consumer prices data - fall of oil prices will, most likely, reduce those values; therefore, dollar index adjustment is possible, at least, up to 91.20-91.50.

Author: Navsher Bartash,
ForexChief Currency strategist