The markets’ main focus is currently the likelihood of the first US rate rise since 2006 and the divergence of US and European monetary policy. Janet Yellen announced last week that the US economy has “recovered substantially” from recession. Friday’s figures showed 211,000 new jobs created in November.
Yellen, Stanley Fischer and other FOMC members are concerned about the impact of persistently low borrowing costs on the economy. The consensus is that a hike is due, but there is also speculation that it may come in the form of a series of small raises – perhaps 0.25 per cent per month.
Any announcement will result in volatility, but the effect on the dollar may be more muted than some are hoping for.
Although the euro surged 3.1 per cent against the dollar on Thursday following Mario Draghi’s latest monetary policy announcement, many think the gains will be temporary. The Eurozone economy is likely to remain sluggish as the US economy expands.
The feeling is growing in some quarters that Draghi is performing a skilled, but increasingly difficult balancing act, and may find himself with less room for manoeuvre in 2016. The bottom line is that the Eurozone is a long way from being a single integrated economy and one size will not fit all.
The possibility of a Brexit, the recent referendum in Denmark, the rise of the EU antagonistic National Front in France, and dissatisfaction in Finland are increasing the possibility that newer EU members such as Poland may shy away from adopting the euro.
A continent-wide wave of deeper euroscepticism would be a major additional headache for Draghi.
ETORO INVESTMENT ANALYST
The markets are responding to Opec’s apparent lack of strategy and direction.
The price of West Texas Intermediate was the first to break the $40 benchmark, trading at $39.42 per barrel. Brent crude has also fallen over 2.5 per cent since Thursday, trading at $42.73 per barrel.
eToro traders were clearly watching oil prices and started going long as soon as it broke the $40 point.
Traders are also following the Fed announcements and Eurozone developments, going short on US indices and long on European ones.