The markets are a living animal that is constantly changing and that is why it is difficult to identify movements reliably, particularly in shorter periods, however, there are some “laws” that are almost always respected by the registration of indices. The main one being the fact that progress is fundamentally driven by the basic forces of demand and supply, whatever the timeframe and within that binomial of forces, there are situations in which the divergence is such that the anticipation of a scenario becomes an exercise not only more consistent but also almost mandatory.
One of these situations derives from the monetary policies of central banks, which are today one of the main market forces because of the size of the money supply involved, as well as the interest rate issue and, as I mentioned in previous analyses, since mid-2021, two main central banks are on a diverging path, which, being not as obvious as the divergence of 2014, is enough to justify the relative strength of the US dollar against the Euro in recent months, given that the FED is in a normalization phase while the ECB don’t even think about it.
In fact, this week the president of the ECB reinforced this more relaxed mentality by indicating that there are “all” reasons for not following the same path as the FED, and these reasons are the same reasons that Jerome Powell claimed in 2021 not to change the path of the EDF We will see in the coming weeks whether or not the economy validates this theory of the ECB members, however, the probability of the main currency pair heading towards the parity is now much higher.
