Global Risk Sentiment: The Market Has Begun Testing The Central Bank.

Recently, the Central Bank of Japan and other central banks have adopted monetary easing policy, which has led to currency appreciation. What is the market? The Bank of America reports that the market may not care about the central bank's current policy and turn to the central bank's policy in the future.

It predicts that some central banks will be able to give up loose monetary policy this year due to inflationary pressures and data, and the next major foreign exchange trading opportunities may arise.

The full text is plated for readers' reference.

Over the past few years, foreign exchange traders have three main concerns: global risk sentiment, commodity prices, and the possibility of central banks adopting loose and unconventional monetary policies.

The interaction between these three factors is a mountain for foreign exchange traders to gain capital gains.

In fact, looking back, these three elements can really explain the previous major foreign exchange market fluctuations: when Andouble adopted a loose monetary policy, the yen weakened; when Europe adopted quantitative easing, the euro weakened; when oil prices plummeted, commodity currencies depreciated; when Switzerland gave up the Swiss franc's lowest exchange rate against the euro in the European debt crisis, the Swiss Franc strengthened.

In the case of quantitative easing, emerging market currencies appreciated and the emerging market currencies depreciated when the Fed tightened policy.

However, this year,

Some of the basic elements have changed.

Risk sentiment and commodity prices are still two major factors affecting the foreign exchange market, among which the impact of China's economic situation and oil price fluctuation on the foreign exchange market is typical.

However, the reaction of the market to the central bank policy is very different.

The Bank of Japan, the European Central Bank, the New Zealand Central Bank, the Swedish central bank and the Central Bank of Norway have adopted a loose monetary policy unexpectedly.

However, the result is that the currencies of these countries have risen, while the share prices of other countries have declined except for the New Zealand stock market.

This has also raised questions about the effectiveness of the central bank's monetary policy.

In comparison, the monetary policy of the New Zealand Central Bank is most effective for devaluation, while the monetary policy of the Central Bank of Norway is the most invalid.

Currency depreciation may not be the main objective of loose monetary policy, but is easing.

After that, it led to currency appreciation and share price fall, which is a mystery.

With regard to this phenomenon, we have recently proposed that the market is no longer concerned with the central bank's policy, but instead focuses on what the central bank will do or will not do.

In the case of the Bank of Japan, investors cut interest rates to negative interest rates in Japan as a sign that the policy has reached the limit.

This logic of investors has directly challenged Andouble economics, despite the rising global risk sentiment and the expected increase in Japan's easing monetary policy in the future in April, the yen has appreciated.

In fact, in our annual report, the US dollar / yen was 100 as the tail risk area, and now we have incorporated it into the baseline risk range.

In Scandinavian countries, the good performance of Sweden's data and rising inflation in Norway directly led to the ineffective monetary policy of the two eastern European countries, because investors saw this as a great opportunity to buy local currencies.

New Zealand's monetary policy is the most effective among the five countries. However, this is because the New Zealand Central Bank still has a larger traditional monetary policy space.

The market's response to Yellen's March dove speech provided further evidence.

Yellen tried to persuade the market in March, and the Fed had third missions - to maintain stability in the global market.

In the case of the European Central Bank, investors mistakenly described Delagi's failure to further reduce interest rates as a signal that the European Central Bank's easing monetary policy has reached its limit.

There is clear evidence that the negative interest rate effect is not obvious, and the ECB is likely to adopt further quantitative easing.

The European Central Bank has said that the deposit rate has failed to achieve its goal, and if the economic outlook deteriorates, it may further reduce interest rates.

In fact, the euro is not only strong now, but inflation expectations and share prices even fall back to the beginning.

The current market situation can not help but feel that the European Central Bank seems to have never taken any measures to deal with the current predicament.