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ECB Contagion?

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Today has been a day of weakness for the EUR and I have a suspicion that it’s related to the risks of contagion since SVB collapsed in the states and in turn the response from the fed.

I think this has lead to speculation in the ECB’s resolve to tackle inflation and so betting on the rise of rate hikes tomorrow and also going forward.

I don’t believe that there is a huge risk of contagion as SVB was over invested in the tech sector which generally gets hammered during times of high inflation. Not all banks are over exposed in the way that SVB were.

Whilst isn’t certainly a shock, it’s not a surprise after looking over their financials.

I think it would be foolish of the ECB not to be cautious given the sell-off in bank stocks in Europe and beyond but panic is expected when such an event arises. Personally, I don’t believe that the ECB will reduce tomorrow hike by 50bps, I think cautious language may be used for forward guidance on future policy rates but I feel this latest move in price is an overreaction.

If you look at the chart, the move today has been disproportionate to the reaction of the indicators. Particularly the delta calculation. I don’t believe this move is supported by a huge volume in selling and so I’ve entered a cautious long at 1.0529 With support being low 1.0515 (ish) I have a view to scaling in trades depending on tomorrow’s news.

Today’s panic may be a good buying opportunity if you have the stomach for it.

Again, this is just my very basic opinion of why I’m longing this pair and is to be taken as nothing more than that.

Trade safe.

註釋

With tomorrows ecb rate hike and suspected carefully worded forward guidance I've set my stop loss to break even +5. I really don't think Lagarde will increase less than 50bps but I imagine the volatility and eyes will be centered around the policy statement and guidance for future hikes. My initial TP was set for 1.0600 but I'm undecided about moving it. Ill update when its closed.

註釋

The 50 billion loan given to AG following the statements made by the Saudi National Bank should help shore up price stability (I hope so because I bought shares in them) but this situation is causing more fears of contagion, although I think that's all they are. Just fears. That being said, I expect cautious words from the ECB today so I've closed the trade down at 1.0629. Sometimes the best trade is no trade.

Total profit - 100 pips.

註釋

**CS (don't know where AG came from, this is why I need to proof read before I post :p)

註釋

I'm always amazed at how well Lagarde is able to slip and dodge her questions. she knows she can't verbally commit to future hikes given what's happened but I think she did the next best thing. Although she has said that future rate hikes will definitely happen if the data dictates so. And she indicated that the ECB sees inflation staying too high for too long. Ergo, we expect the data to come in hot and we won't hesitate to tighten further in that eventuality because the banks in Europe are fine to withstand the storm. I would expect more hikes.

Good look for next Wednesday Mr powell.