World economy talk

[Lady Bathory]

The ECB's aggressive measures and willingness to do more should have been negative for the euro. The euro did fall but recovered all of its losses. Mario Draghi said interest rates are pretty much at the lower bounds which means no more rate cuts. And the ECB is not yet engaged in QE so that still makes the ECB more dovish than the Federal Reserve and the Bank of Japan.

[uls]

there will be no more rate cuts and QE is still months away

for now there's no downside pressure on the euro

let's see EURUSD test 1.37

[uls]

don't forget US 10Y yield

rising yield is dollar positive

[Lady Bathory]

there will be no more rate cuts and QE is still months away

for now there's no downside pressure on the euro

let's see EURUSD test 1.37

The market remains short the euro. EURUSD broke through 1.3585 support a while ago. Could retest Thursday's low.

[uls]

the euro is becoming the favorite funding currency for carry trade

that's putting pressure on the euro

[uls]

recent strong economic data confirm the US economy is recovering steadily

the Fed will start to raise rates next year

other central banks are moving in the opposite direction -- the ECB eased monetary policy further, the BOJ is likely to continue its aggressive asset buying... so the dollar is likely to strengthen

in line with Bathory's stronger dollar view

[Lady Bathory]

the euro is becoming the favorite funding currency for carry trade

that's putting pressure on the euro

New Euro Play: Borrow Cheaply, Invest Elsewhere - WSJ

The euro has weakened only a touch against the dollar since the European Central Bank cut interest rates earlier this month. But this masks a larger decline against currencies of countries around the world that offer higher interest rates.

The single currency, for example, has dropped about 1.5% against the Norwegian krone, while the Polish zloty has climbed to its strongest level in more than a year against the euro.

It's a sign that the euro is becoming a vehicle for investors to take advantage of the difference in interest rates between regions. With ECB deposit rates now in negative territory for the first time, the euro will be increasingly cheap to borrow and sell in favor of higher-yielding currencies, fulfilling a role known as a funding currency.

[uls]

USO -- WTI ETF

BNO -- Brent ETF

[uls]

U.S. Industrial Production Rises 0.6% in May - WSJ

U.S. factories boosted production in May as the nation's industrial output increased for the third time in four months, a sign that growth in the critical manufacturing sector is back on track following a harsh winter.

Industrial production rose a seasonally adjusted 0.6% from April, the Federal Reserve said Monday. Capacity utilization, a closely watched gauge of slack, ticked up 0.2 percentage point to 79.1% in May.

Economists surveyed by The Wall Street Journal had expected industrial production would rise 0.5% in May, and capacity utilization would rise to 78.9%.

[uls]

FOMC meeting June 17 to 18

another $10B reduction in asset purchases

--

BSP policy meeting on Thursday

rate hike likely