On top of causing unprecedented volatility across the Forex market, which
resulted in many traders going seeing negative balances and some Forex brokers
experiencing major financial difficulties and even announcing insolvency, such
a move by the SNB stimulated respective reactions from other central banks,
thereby promoting a new wave of international currency wars.
At the same time, this situation triggered a decline on bond yields as
investors keep on fleeing risky assets like stocks for safe-have assets like
bonds. In other words, stocks have been sold in favor of bonds since the SNB’s
unexpected decision. As a result, safe haven currencies gained some strength
while the prices of U.S. bonds appreciated, thereby pressing down their yields.
Still, U.S. bond yields are not the only ones to decline. Japanese, French,
German and many other bonds have already send their yields go down since then.
Moreover, the Japanese short-term bond yields entered the negative zone in 2014
amid the Bank of Japan’s big-scale asset purchase program. Last week, even the
5-year bond yield came close to zero. At the same time, the 10-year and 30-year
bond yield curves have been in a steady downtrend for a while. Investors say
this is abnormal. Amid inflation slowdown and unexpected central bank
decisions, investors are more likely to cash out and keep their funds safe and
secure under the mattress rather than paying governments for backing the safety
of their savings.
At the same time, Masterforex-V Academy experts do not deny the possibility
that that Denmark ’s central bank may well be the next EU central bank after
the SNB to make an «unexpected» monetary decision. With that said,
Masterforex-V Academy predict that most traders and investors are going to be
focused on central bank decisions this week. It is quite logical if to consider
the aftershock of the SNB’s decision since wise traders and investors are
expecting other banks to respond. While they are waiting for reports from the
central banks of Japan and Canada, the major focus is obviously the European
Central Bank’s decisions, which is scheduled for January, 22nd. Some market
participants expect the ECB to implement quantitative easing.
At the same time, Greece is to conduct parliamentary elections on January,
25th. The possibility of a Greek exit from the Eurozone (Grexit) is currently
the biggest political risk for the Eurozone.
According to the experts from the Options Trading Department of Masterforex-V
Academy, the expected interest rate hike in the USA (expected in mid 2015) may
reverse the bear tendency seen with the bond yields, especially in Japan and
the Eurozone. From the latest 2008 crisis and up until recently, central banks
coordinated their efforts to avoid other global aftershocks. Still, after the
Fed tapered its QE to the end, the era of coordinated efforts was over, which
is confirmed by the SNB’s recent move unleashing another wave of currency wars
worldwide.
If the ECB does launch another big-scale asset purchase program, chances are
that this effort may well stop bond yields from going down. Or the Bank of
Japan may well react to the declining bond yields and improve the durability
against further monetary easing. Still, experts still believe in the BOJ’s
decision to continue its monetary easing in April 2015 after an unexpected
decision to start the easing on October, 31st, 2014.
Meanwhile, lower oil prices may contribute to reaching a Japanese budget
surplus. 95% of the holders of Japanese bonds are Japanese investors. Still, if
the current conditions are still there in the near future, the Japanese Yen is
probably going to fall further down in against the U.S. Dollar.
The same story may hold true for the Eurozone. Amid a weaker euro amid
differences in the economic situations and the monetary policies in Europe and
the USA, we are likely going to see are flight of investment capital from the
Eurozone while low energy prices are going to make it possible to stimulate
consumer spending. Regardless of the ECB’s decision, the common European
currency is likely to see a sellout in the short run, Masterforex-V Academy
experts assume.
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