The demand for safe assets continues to remain stably high and will only increase in the near future due to the unpredictability of the actions of the North Korean leader. Gold consolidates before breaking one-year peak, the yen shows growth despite the proximity of Japan to the source of geopolitical tensions.
Uncertainty over North Korea persists, as the country plans to launch another missile before Saturday. According to the national agency, the previous launch of the hydrogen bomb showed unprecedented power of the explosion.
The demand for risk will remain limited until the ECB meeting on September 6, at which Mario Draghi will voice further guidance on the ECB's . The main speculations have revolved around the appreciation of the euro and its impact on and output growth. Mario Draghi's comments on this issue will have a direct impact on the further dynamics of the euro . The growth of the national currency may be fundamentally justified by the economic recovery in the euro area, but cautious investors see it as an overly optimistic interpretation of both the macroeconomic data and ECB statements. The member of ECB's governing council Ewald Novotny upheld optimism stating that the recent strengthening of euro should not be “overdramatized." However, looking into the history, we can recall the words of Draghi in 2014 that "as a rule of thumb, 10% appreciation of the national currency can cut by 20-40 percentage points." And if the euro gained about 13% against the dollar this year, the growth against other majors including trading partners, was less significant, which also speaks in favor of the presence of fundamental reasons for the euro's growth. According to the latest ECB forecast, the price increase in 2018 should be 1.3% with the EURUSD rate at 1.09, but most recently the rate has been at the level of 1.20, which can cause concerns among the officials. Target level pursued by the is 2%. Against this background, hopes for aggressive, confident rhetoric can be expected by the bulls with a special sympathy for european currency.
On Tuesday, the course of EURUSD gained a temporary equilibrium of about 1.19, remaining relatively indifferent to the idea of growth. A zone above 1.20 can already cause discontent and meet criticism of the ECB, which is very risky. Therefore, in the absence of certainty, it is necessary to show exemplary behavior. The pair can go down to find good entry points, as investors are hoping that the hints on tapering will finally be announced, finally establishing an era of long-term growth for the euro .
Activity in production and services in the euro area remains stably high, the reports released on Tuesday showed. PMI in Germany was ahead of forecasts, activity in Italy and France slowed slightly, but remains in the growth zone. The same indicators, but in the UK came out slightly worse than expected, but also pointed to the expansion.
This analysis is provided as general market commentary and does not constitute investment advice.