ECB & President Lagarde, Weekly Claims & Chair Powell

EURUSD, H1

The ECB delivered a 75bp rate hike, with the deposit rate raised to 0.75% from 0.0%, the main refinancing rate now at 1.25%.

At the same time, the initial statement said that the central bank expects to raise interest rate further, while regularly re-evaluating the policy path. Inflation is much too high according to the ECB and forecasts were lifted to 8.1% this year, followed by 5.5% in 2023 and 2.3% in 2024. Growth projections were cut to 3.1% this year, followed by 0.9% in 2023 and 1.9% in 2024. The inflation projection for 2024 is still above the ECB’s upper limit for price stability and we suspect that the uptick in consumer inflation expectations last week counterbalanced concern about the impact of slowing demand.

ECB decision was unanimous, despite the dovish comments from some ECB members ahead of the meeting. Lagarde admitted that there were different views around the table but highlighted that after the review of the staff projections and the jump in inflation over recent months, the decision was unanimous. Lagarde highlighted that inflation pressures are now more broadly based, even as energy prices remain the main driving factor. Against that background Lagarde stressed that “determined” action needed to be taken. So, after initially moving very slowly on policy normalization, the hawkish camp has now stepped up to the pressure and forced the hands of the doves even as the risk to the growth outlook are primarily on the downside. Lagarde hinted that neutral rate is not necessarily the end rate of the current tightening cycle, with more to come at upcoming meetings, although she remained open on the magnitude of further moves.

US initial jobless claims dipped -6k to 222k in the week ended September 3, the lowest since late May. It follows the -9k decline to 228k (was 232k) in the August 27 week. Despite the recent declines, claims have generally been on a big 5-month climb since hitting the 53-year low of 166k in March.

Fed Chair Powell defended the hawkish stance and continued to stress the need to act “forthrightly” and proactively to bring down inflation to the 2% goal. He is speaking at the Cato Institute. Powell also cautioned against prematurely loosening policy. He vowed the Fed will not be distracted by “external political considerations” and will keep going until the job is done. So far the evidence suggests longer term expectations are anchored close to the 2% level, though shorter term expectations are higher. Inflation would not have been so high were it not for the pandemic. The FOMC is seeking to slow growth below trend to reduce inflation, which also will help rebalance the labor market.

EURUSD initially breached parity to 1.0030 highs as the ECB decision broke, during the Lagarde press conference the pair spiked down to 0.9930 before lifting back to 0.9950. Parity remains the key pivot point as Fedspeak goes into lockdown ahead of Tuesday’s CPI data and the FOMC meeting September 20/21.

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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ECB rate hike could disappoint Euro buyers

The main event of the day today will be the meeting of the European Central Bank. Bloomberg economists are divided on expectations in regard to the size of the rate hike, with just over half of them predicting the ECB will raise rates by 75 bps, and just under half believing a 50 bps outcome is more likely. You can count on the fingers of one hand those who expect a 25 bps rate liftoff. The more stable position of the Euro (against, for example, the pound sterling) is explained by the fact that some investors expect an aggressive outcome (75 bp) and do therefore not sell Euro. Therefore, if the ECB prefers to lift interest rate by 50 bps it is highly likely that investors will start to unwind their long Euro positions, which will result in a EURUSD downfall. Also, investors' attention will be focused on the ECB staff economic forecasts in order to understand the scale and depth of the recession that the regulator expects, on which the future course of monetary policy will depend.The dollar has moved into a decline as investors take profits after a significant rally. The trend on the weekly chart remains upward, but the candlestick pattern raises the chances of consolidation or a modest downside before the upward move resumes: Powell will speak later today and traders should pay high attentionto his speech, as this is the first speech of the head of the Fed since his comments in Jackson Hole, furthermore, there has been a significant increase in US bond yields and it is important for investors to assess whether the Fed is satisfied with the current market pricing of the interest rate path. Despite some recovery for major European currencies (GBP, EUR) in the second half of the week, the energy crisis on the European continent continues to present great uncertainty, which forces investors to reduce or at least not increase the share of European assets in their portfolios. As mentioned above, investors take profits after the dollar rally, preferring to wait for the outcome of the ECB meeting, which also played a role in the recovery of the European currencies. If the ECB disappoints and opts for a moderate tightening, the dollar correction may prove to be a fleeting one.

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Copper Futures (HG1!), H4 Potential for Bullish Rise

Type : Bullish riseKey Levels:Resistance :3.5000 Pivot:3.4735 Support : 3.4170 Preferred Case: On the H4, with the price pullback from the support, breaking the descending trendline, MA10 is above MA30, combined with the fundamental news, we have a short term bullish bias that the price may rise from the pivot at 3.4735, where the current price is to the 1st resistance at 3.5000 where the previous swing high is. Alternative scenario: Alternatively, price could drop to the support at 3.4170, where the swing lows are. Fundamentals: Because of Chinese administration, the decline in copper production in Peru, and a steep fall in the DXY , copper shows a pull back trend from the support.

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Investment Bank Outlook 08-09-2022

BNY MellonECB Searching For A New BaselineThe European Central Bank is expected to step up its policy-normalisation process today with a 75bp rate hike. While we do see some downside risk of a 50bp move considering the traditional caution of the Governing Council, the scale of the move is probably beside the point. Growth expectations are so downbeat that even at maximum pricing of 75bp for this meeting and 2.50% for terminal rates, the euro has failed to hold onto parity versus the US dollar with energy shortages looking set to intensify in the near term. On the policy path itself, the first note of caution for today is that the ECB may not have full details of the fiscal package to be launched by national governments and the European Union. A political consensus is building on using windfall taxes to fund supplements to household bills and energy price caps. We suspect this will need to account for up to 5% of EU household disposable income to materially avert energy poverty. This would be equivalent to a cumulative stimulus of up to 4% of Eurozone GDP over the next 18-24 months. For comparison, the anticipated package also due to be announced today in the UK, at £170bn, is equivalent to almost 7% of nominal GDP. If the Eurozone gets half close to that, the forecasts upon which current policy is determined may have a short shelf-life.The ECB will also need to decide where its baseline is. Today's meeting will bring a new set of staff macroeconomic projections (SMP), and we expect them to look radically different from those issued in June. In that set, the SMP provided a ‘downside scenario’ of forecasts, predicated on the key assumption that there would be “a complete cut in Russian energy exports to the euro area starting from the third quarter of 2022, leading to a rationing of gas supplies, significantly higher commodity prices, lower trade and intensified global value chain problems." Suffice it to say that the “complete cut in Russian energy exports” condition has been fulfilled, though high levels of reserve capacity achieved earlier than scheduled in key Eurozone economies suggest the ‘rationing’ condition remains open to debate.Under the downside scenario, Eurozone growth in 2023 collapses from the 2.1% baseline to -1.7%; a third of the cumulative 3.8pp decline is attributed to production cuts, and the rest is due to the impact of other secondary channels. Even if the indirect channels are softer than expected, Eurozone growth would be close to zero. We believe it will be extremely difficult for the ECB to hazard any form of rate-based tightening with such a deep contraction in growth. However, as shown below, the market’s consensus forecasts are not yet as pessimistic, as very moderate growth is expected for 2023. Forecasters for now could be awaiting further guidance from the ECB and September SMP, but as the direction of travel is clearly for strong fiscal intervention, there is reason to reserve judgement. What could prove difficult to calibrate is that even if household energy bills are frozen, the lack of energy supplies will have an impact on production. As the Eurozone is not a consumer-driven economy, the growth boost from protecting households would likely not be as strong as a similar programme for the UK. Ultimately, we see some upside risk to the -1.7% downside view after national and EU programmes are announced, but a heavy discount from the June baseline SMP for 2023 growth would seem required.

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Daily Market Outlook, September 8, 2022

Daily Market Outlook, September 8, 2022 Overnight Headlines Japanese MoF, FSA and BoJ will meet at 08:45BST Top Japanese currency diplomat to brief media after meeting Yen Extends Decline As Traders Eye 145 Level And 1998 Lows Biden Delays Decision On China Tariffs Put In Place By Trump Fed Officials Reluctant To Call Inflation Peak As Policy Meeting Looms Fed Report Shows Weak US Growth Outlook With Inflation Cooling Goldman Lifts Forecasts For Fed Hikes In September And November WH: Undermining N. Ireland Agreement Will Not Help US-UK Trade Talks ECB Poised For Another Big Rate Hike As Inflation Soars UK To Scrap Fracking Ban Sept 8; Requests For New Drilling Exp In Weeks UK Surveyors Expect Weakest Home Sales Since At Least 2012 UK Recruiters Say Hiring Slow, Pay Growth Weakest In Over A Year Japan's Q2 GDP revised Up To 3.5% Annualised Expansion RBA Looks Set To Slow Pace Of Rate Hikes But Peak Is Unclear Australia’s Trade Surplus Almost Halves As Coal, Iron Ore Tumble Dollar Resumes Climb In Asia As Powell Speech, ECB Loom US SEC To Propose New Treasury Market Reforms Next Week Oil Edges Up After Plunging Almost 6% On China Demand And Dollar Stock Rebound In Asia Is Tempered By A Firm Dollar UK Surveyors Expect Weakest Home Sales Since At Least 2012The Day Ahead Investor risk sentiment improved in Asia following the positive close in equity markets on Wall Street. That has been attributed to further declines in the oil price related to weakening global demand which, in turn, has lowered US Treasury yields. Still, Fed policymakers reiterated that tackling inflation remained the priority. In the UK, BoE Chief Economist Huw Pill yesterday said that freezing energy bills may have a downward effect on inflation in the short term, although the support to incomes may result in ‘slightly stronger inflation’ further out. The main financial market focus today is the ECB policy announcement at 13:15BST followed by a press conference with President Christine Lagarde at 13:45BST to explain the decision and answer questions. Also today, US Fed Chair Powell will take part in a discussion at a monetary policy conference at 14:10BST as markets continue to speculate on the size of the US central bank’s next hike later this month. In the UK, new PM Truss is expected to set out details in Parliament of a major support package for households and businesses in the face of soaring energy prices. The ECB is set to raise interest rates again after lift-off at their last meeting in July when they hiked more than expected by 50bp, bringing the deposit rate up to 0% from -0.5%. This time round, the debate on the Governing Council seems likely to shift to whether to raise policy interest rates by 50bp or a record 75bp. Either way, it would bring interest rates on the deposit facility into positive territory for the first time since 2012. Despite survey evidence pointing to Eurozone GDP growth coming to a near standstill, the ECB’s focus remains on worsening inflation trends. Rate-setters, particularly the ‘hawks’ on the council, will be concerned about potential second-round effects and risks that medium-term inflation expectations are becoming unanchored from the 2% target. Informing rate-setters will be a new set of ECB economic forecasts. Policymakers will be mindful that recent forecasts have consistently underestimated near-term inflation. They will also closely focus on the inflation forecast for the final year of the projection period which, in June, was raised to 2.1% for 2024. But there will also be caution among more ‘dovish’ members about the potential side-effects of a larger rate rise this week, including the impact on peripheral bond yields. Hence a 75bp hike today is not a done deal. Perhaps reflecting this uncertainty, the OIS curve is currently pricing in about two-thirds probability for such an outsized move.FX Options Expiring 10am New York Cut EUR/USD: 0.9800 (1.35B), 0.9850 (965M), 0.9865 (558M), 0.9900 (909M) EUR/USD: 0.9950 (648M), 1.0000 (2.22B), 1.0050 (756M), 1.0075 (619M) USD/JPY: 140.00 (1.87B), 142.00 (502M), 143.00 (561M) GBP/USD: 1.1400 (593M). EUR/GBP: 0.8650 (422M) USD/CAD: 1.3200 (650M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.0250 Bounces ahead of ECB as US yields ease EUR/USD gained 1.0% as fall in US yields and slide in oil price underpinned It closed above 0.9977 and that is now support Resistance is at 1.0040 and break would suggest bottom forming ECB decision later today is a key event with market pricing in a 75 BP hike If ECB opts for 50 BP hike instead - it will likely see EUR/USD sell off Fed Chair Powell speaks later today and will likely reiterate hawkish view Sustained 0.9900 break would target 0.9608 base in September 2002 20 Day VWAP bearish, 5 Day bullishGBPUSD Bias: Bearish below 1.19 At pivotal levels, as government policy unfolds Off 0.15% after closing + 0.15% amid USD weakness, EUR/GBP closed +0.85% UK PM Liz Truss to set out 'bold' plan to tackle energy crisis Cost and economic impact of Truss's plans will be key for gilts and sterling Bearish trending setup while 1.1586 caps on the close Wednesday's 1.1407 failure leaves a 'hammer' reversal daily candles Close above Wednesday's 1.1535 high would suggest a 1.1407 base in place 20 Day VWAP is bearish, 5 Day bearishUSDJPY Bias: Bullish above 139 USD/JPY capped ahead of 145 option KOs, as US yields ease Japan MoF, FSA, and BoJ will meet at 08:45BST FX diplomat to brief media after meeting USD/JPY as high as 144.99 EBS overnight, capped just ahead of 145.00 145.00 strike sight of large option barriers, defensive sales noted US yields easier too, retracement ahead of Powell-speech Treasury 2s from 3.522% to 3.431%, 10s from 3.365% to 3.250% USD/JPY is seeing some bounce in early Asia trade, 143.68 to 144.29 Consolidation in low 144-area Tokyo prognosis ahead of Powell Japanese importers, some investors, specs likely buyers sub-144.00 Option expiries today include 143.00 $561 mln, smaller 144.00-85 20 Day VWAP is bullish, 5 Day bullishAUDUSD Bias: Bearish below .70 Falls to session low after Lowe hints at slower hiking pace AUD/USD dips below 0.6720 from 0.6745 after comments from RBA Governor Lowe Lowe said rapid tightening makes the case for slower pace in future hikes Many analysts polled by Reuters expect the RBA to hike by only 25 BPs in October AUD buyers tipped around 0.6700 with support at 2022 low at 0.6682 AUD/USD trending lower and break below 0.6680 could see trend accelerate 20 Day VWAP is bearish, 5 Day bearishBTCUSD Bias: Bearish below 25.3K BTC targeting test of 20k from below GameStop Partners With Crypto Marketplace FTX, Posts Smaller-Than-Exp Loss Crypto Lender Celsius Looked A Lot Like A Ponzi, Says State Regulator - FT KMPG report suggests Crypto investment to remain depressed remainder of 2022 BTC supported by Jul 13 low 18.9k Aug 28's 22.2k may pull BTC higher 20 Day VWAP is bearish, 5 Day bullish

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Market Update – September 8 – Stocks Rise, USD Slips, Oil Tanks

• USDIndex – spiked to 110.75, before slipping below 110.00 yesterday, but still holds the bid close to 20-yr highs and trades at 109.50 now. Yields also slipped, but the curve remains inverted. Fed Fund Futures now at 79%/21% for 75bp vs. 50 bp September 21. FedSpeak Collins  – inflation at 2% is the Fed’s “Job One,” Vice Chair Brainard said tight monetary policy will continue “for as long as it takes to get inflation down.”
• EUR – ECB action today and 75bp also in the frame.  EUR rallied back to Parity yesterday and trades at  1.0093 now. EU plans a price cap on Russian gas prices – Putin warns of “winter freeze”.  
• JPY rallies again (yet more new 24 yr highs) tested to 145.00 & holds at 143.50. Japan MOF, FSA, and BOJ to hold meeting at 0745 GMT today.
• GBP new 37-year lows tested 1.1400 yesterday, back to 1.1515 now. New PM Truss set to announce £100bln emergency energy plan, via massive increase in government borrowing. 
• Stocks US stocks rallied as Dollar & Yields cooled (S&P500 3979). Nasdaq best performer (+2.14%). TWTR +6.6%, TSLA +3.38%, Globalstar +21% ( new satellite partener for APPLE’s new iPhone 14, Watch 8 Ultra and new AirPods (no news on new services). Share price unmoved after hours.   

• Oil tanked (-5%+) on Russia/EU situation; and global outlook. Trades at $82.65 now from overnight lows at $81.40 now. Summer highs were north of $123.50.
• Gold – also rallied from lows under $1700 at  $1691, to $1718.60 now.
• BTC – plunged to 18.5k lows yesterday and remains under 20k at 19.3k now. 

Overnight & Today – US Weekly Claims, ECB Announcement, Speeches from ECB’s Lagarde, Fed’s Powell, Evans, Kashkari & BoC’s Rogers.

Biggest FX Mover @ (06:30 GMT) GBPCHF (-0.31%). Continues to decline, yesterday breaking under 1.1300 to 1.1220 lows which are being re-tested now. MAs aligning lower,  MACD histogram negative & signal line neutral, RSI 39.90,  H1 ATR 0.00137, Daily ATR 0.00814.

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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S&P500 And Silver Are on The Rise!

EUR/USD has managed to stay at the level of 0.9900 for some time. After that, the asset’s price pulled from this level, targeting the downtrend denoted by the blue line on the chart. The currency pair is likely to hit the level of 1.0200 soon. So, let’s wait and see what is going to happen next.Having formed the bearish trap at the psychological supporting level of 18.00, silver is trying to close the trading day with a white candle. It could potentially mean that silver might head North and target the level of 20.00 next.S&P500 has pulled from the supporting level of 3900.00, trying to close the trading day with a bullish engulfing. The price of the index is likely to jump soon.

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A UK-based biotech stock aiming to beat depression with magic mushrooms

Biotech company COMPASS Pathways has produced a drug to treat depression based on the psychedelic substance found in magic mushrooms. Bruce Packard assesses the stock's potential for investors.

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US30USD, H4 | Potential Bearish Drop

Type: Bearish Reversal Key Levels:Resistance: 32601.75 Pivot: 31881.43 Support: 30975.41 Preference Case: On the H4, with price moving below the ichimoku indicator, we have a bearish bias that price will drop from pivot at 31881.43 where the pullback resistance and 23.6% fibonacci retracement are to the 1st support at 30975.41 where the swing low support is. Alternative Scenario: Alternatively, price could break pivot structure and rise to 1st resistance at 32601.75 where the pullback resistance, 50% fibonacci retracement and 78.6% fibonacci projection are.

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Are we heading for a sterling crisis?

The pound sliding against the dollar and the euro is symbolic of the UK's economic weakness and a sign that overseas investors losing confidence in the country.

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Where small businesses can find help with energy bills

It's not just households struggling with soaring energy bills. Small business are too. But, says David Prosser, there are several ways to help mitigate the impact.

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5 defence stocks to arm your portfolio

Defence stocks have been in the spotlight for more than a year owing to geopolitical trends predating the Ukraine war and low valuations. Alec Cutler, portfolio manager of the Orbis Global Balanced and Cautious Funds, presents the bullish case.

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European countries untie the energy sector from gas

European markets traded moderately in the red on Wednesday, taking over the bearish baton from the US market, whose capitalization shrank on Tuesday. Investors are actively dumping European assets, as the threat of the gas crisis spreading to the financial sector grows, threatening to launch a wave of bankruptcies. European governments, probably with some delay, are developing mechanisms to isolate the economy from the energy crisis, including: limiting the wholesale prices at which gas is purchased from Russia, taxing excess profits, or capping the prices of energy companies in the green energy sector that are raising prices along with traditional producers, issuing special credit facilities for electricity suppliers, who are facing soaring borrowing costs due to declining margins (due to fixed selling price in contracts), and compensating utility bills to poor households, while promoting energy rationing.The pumping of gas through the Nord Stream pipeline has been completely stopped, given the ultimatum conditions of both parties, it is unlikely to resume in the near future. European countries have achieved some acceptable results in filling gas storages and preparing for winter. Consequently, the demand for European currencies becomes a function of the effectiveness of the actions of European governments in overcoming the existing imbalances in the energy system of the EU and the UK. In other words, investors are asking themselves the question whether European countries will be able to prevent unforeseen bankruptcies that could shake the financial sector. It will take time to answer this question, so the credit risk premium in European assets is set to rise in the short term.European currencies are under serious pressure, the British pound has suffered more than others and collapsed to 1.14. Given that sellers are approaching the level for the second time, and that uncertainty is growing, there is a high probability of a breakdown and a new low this week (1.13-1.1350). The fall of the Euro is constrained by expectations that the ECB will raise rates by 75 basis points on Thursday. Just under half of the economists surveyed by Bloomberg expect this outcome. Most expect the ECB to raise the rate by 50 basis points, but most likely EURUSD will fall to 0.96 on such a decision:The yen is in free fall, USDJPY has crept close to the round mark of 145 yen per dollar. The Bank of Japan has not yet commented on the fall; however, the last few days of parabolic movement increase the chances of foreign exchange intervention, or at least verbal warnings about interventions in the foreign exchange market. In addition, the weekly chart shows that the price is approaching the level of 146 (the peak value of August 1998), which can work as a powerful resistance:

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ECB Preview: 50 or 75?

The Eurozone’s record inflation print of 9.1% has left markets pricing in a 75 basis point hike at next week’s meeting. We suspect that the hawks have been pushing the debate of a 75 basis point hike as a way to force the doves into agreeing to a half point move.

This leaves the risk of disappointment if the ECB doesn’t deliver. This could mean further problems for the EUR and thus additional inflation risks. For the Eurozone though, 100 basis points of tightening over two meetings is a pretty significant step, and one that should go some way toward restoring confidence in the central bank and its commitment to defending price stability.

The ECB kicked off its tightening with a bold 50 basis point move at the last meeting. The doves hoped that the front loading would allow a switch to more conservative quarter point moves at subsequent meetings. Yet, instead of now eyeing a return to more “normal” quarter point steps, it is clear that the hawks are pushing for another half point hike, and would like to debate a 75 basis point move in the light of record high inflation, which reached 9.1% in August.

This week’s council meeting will come with updated staff projections, which are likely to bring considerable upward revisions to the inflation projections, at least near term. ECB’s Schnabel already said during a panel discussion at the Fed’s Jackson Hole Symposium that

“In this environment, central banks need to act forcefully. They need to lean with determination against the risk of people starting to doubt the long-term stability of our fiat currencies”. The Executive Board member also argued that much speaks in favor of the central bank acting determinedly even if that means risking lower growth and higher unemployment because a “robust control” approach reduces the risk of very bad economic outcomes in the future.

So, how aggressive of a policy path is meant by “determinedly” and “forcefully”. 

What is pretty clear is that a recession is looming now, with data signalling broad based contraction already in the Q3. Things could get much worse over the winter if and when energy shortages lead to outages and rationing. Private consumers will have priority over the winter, which in an extreme situation could force outages at major factories that would also hamper the services sector. Russia”s throttling of gas supplies coincides with major outages at French nuclear power plants and weather-related problems for electricity production, and there are few people now who don’t expect Europe to head for recession. The real question is how long and how deep will it be.

Today’s growth data, presented an upward revision, with Eurozone Q2 GDP revised up to 0.8% q/q from 0.6% q/q reported initially. The unexpected upward revision doesn’t change the increasingly gloomy outlook, but still indicates that the Eurozone headed into the energy crisis with a higher starting base than previously thought. Household consumption bounced 1.3% q/q, government expenditure lifted 0.6% q/q and investment picked up 0.9% q/q. The bounce in investment was counterbalanced by a downward revision to Q1 numbers, which show a contraction of -0.8%. Still, an overall solid report and with employment growth accelerating to 2.7% q/q from 2.4% q/q.

All that will give the hawks something to argue with tomorrow, although the dovish camp has plenty of survey data highlighting downside risks for coming quarters.

The EURUSD holds below parity as investors also concerned that overly aggressive central bank action will add to growth risks, there may be initial pressure on the EUR in the wake of a half point hike, but the single currency may bounce back quickly, depending on Lagarde’s delivery.

Its a close call, but 50 basis point hike is the main scenario, but with a big chance of a 75 basis point hike and an overall hawkish message from the governing council. What is clear is that more tightening is underway. Ultimately the end point for rate hikes will be important for debt financing costs. That end-point though won’t necessarily be impacted by next week’s decision, as the ECB clearly is front loading the steps towards a neutral position on monetary policy. How far it will go from there will depend on many variables, including the future of relations with Russia and the prospect for electricity production over the winter. Data dependency and flexibility will remain a key part of Lagarde’s message.

Click here to access our Economic Calendar

Andria Pichidi

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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