Quarterly Outlook
Q1 Outlook for Traders: Five Big Questions and Three Grey Swans.
John J. Hardy
Global Head of Macro Strategy
Strap yourself in for key market questions that must be answered in 2026.
Doves rule the roost
Michael O’Neill
FX Trader, Loonieviews.net
Summary: Central bank doves are in control. European Central Bank President Mario Draghi reclaimed his top-dove crown which had been usurped by Fed Chair Jerome Powell on Tuesday.
Draghi was open and transparent with his dovish outlook while the Fed chair was more guarded. Powell’s only said the Fed would “act as appropriate to sustain expansion”.
The European Central Bank and Draghi were more direct. They extend the term for “unchanged interest rates” from the end of 2019 until the first half of 2020. Drahi noted, “The prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, is leaving its mark on economic sentiment.” He added that the risks to the euro area growth outlook were tilted to the downside.
EURUSD sank to 1.1205 in the first seconds that the ECB statement was released and then soared, reaching 1.1270 immediately afterwards. That rally extended to 1.1308 during the press conference before prices dropped to 1.1248 as of 13:50 GMT.
Wall Street is trading close to flat. Traders were not impressed with this morning’s US data reports which were slightly on the soft side. The US trade deficit widely modestly, raising questions about the effectiveness of Trump’s trade wars. The euphoria following Fed Chair Powell’s comments has faded and replaced by concerns that President Trump will follow through with his promised 5% tariff on all Mexico imports, which go into effect on Monday.
USDCAD is consolidating yesterday’s gains and is trading at session lows after rejecting a topside move earlier today. Prices got a little support from the modest improvement in the Canadian trade deficit and a lot of support from US dollar weakness vs the majors.
The European Central Bank and Draghi were more direct. They extend the term for “unchanged interest rates” from the end of 2019 until the first half of 2020. Drahi noted, “The prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, is leaving its mark on economic sentiment.” He added that the risks to the euro area growth outlook were tilted to the downside.
EURUSD sank to 1.1205 in the first seconds that the ECB statement was released and then soared, reaching 1.1270 immediately afterwards. That rally extended to 1.1308 during the press conference before prices dropped to 1.1248 as of 13:50 GMT.
Wall Street is trading close to flat. Traders were not impressed with this morning’s US data reports which were slightly on the soft side. The US trade deficit widely modestly, raising questions about the effectiveness of Trump’s trade wars. The euphoria following Fed Chair Powell’s comments has faded and replaced by concerns that President Trump will follow through with his promised 5% tariff on all Mexico imports, which go into effect on Monday.
USDCAD is consolidating yesterday’s gains and is trading at session lows after rejecting a topside move earlier today. Prices got a little support from the modest improvement in the Canadian trade deficit and a lot of support from US dollar weakness vs the majors.
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