ECB-Fed divergence and political upheaval could roil currencies and boost gold, analysts warn

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Marc Chandler, Managing Director at Bannockburn Global Forex, said that after last week’s softer-than-expected Eurozone CPI data, market participants see only a 10% chance of a rate cut at Thursday’s ECB meeting, but they now feel fairly confident of a June rate cut. “It's nearly fully discounted for June,” he said.

“I think the ECB is likely to embark on a consistent rate-cutting cycle, where the Fed may just dip in its toes.” Chandler said that rising salaries in the United States, which are a problem in terms of inflation, are also a boon for growth data. “In the U.S., we've seen real wage increases, wages growing faster than inflation,” he said. “And that helps the consumer sector, which, as we know from recent data, including the Q4 data, continues to be a bright spot for the U.S. economy.”

“What it really is, is a question of timing,” Chandler said. “Timing these things is very difficult, but getting the general direction, getting the pattern... I think the market once again postpones the downturn to the second half of the year.” Chandler said that while much of the euro’s expected weakening in this scenario is priced in, there’s still a late move from the broader public. “There's a difference between institutional and retail investors,” he said. “I think oftentimes retail investors have other things on their plate, they're working, they've got family, and they wait for the news to come out. The news says ‘ECB cut rates, the Fed is not going to.’ And then they might decide to sell the euro.

“In all markets right now, the winners keep on winning and we’re in the most liquid time in history, the easiest time to trade in history,” he added. “So long as gold continues to rise, the money will find its way into gold. When Europe weakens, people look at gold. Maybe it's hard to buy the all-time highs. But since we broke out about $2100, what's the biggest dip? 30, 40 dollars? I think that's the best you're going to get.

Source: Financial Digest (financialdigest.net)

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