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Forex Flash: ECB has wriggle room for rate cuts – UBS

FXstreet.com (Barcelona) - According to Research Analyst Gareth Berry at UBS, “We stress that an ECB cut can still affect the exchange rate, though the marginal impact is indeed weaker as we approach the zero-bound for policy. Nonetheless, there is the strong perception in markets, irrespective of where short-dated money market rates are trading, that the ECB has not reached this stage so there is room to move.”

There will be cursory benefits from a flow perspective: stronger export earnings encourage foreign equity investment (as we have seen with the Nikkei) and cheaper valuations in general could spur interest in fixed income markets as well.

Even without the exchange rate element, we have already seen over the past few trading sessions how some cyclical stocks are already rallying as a sign of confidence - a clear sign that growth is much more of a catalyst for risk-asset prices than any other factor.

US Apr Reuters/Michigan Consumer Sentiment Index: 76.4

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Forex: USD/CAD extends weekly drop after US confidence

Following the 20-pip rise to the daily high printed at 1.0214 on the US GDP Q1, the USD/CAD failed to hold above its opening price and is in decline below the 1.0200 psychological level after the US Reuters/Michigan consumer sentiment just released. The cross spiked down to 1.0174 low after the surprising rise from 72.3 to 76.4 in April, beating the market consensus of 73.2.
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