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EDITOR’s note Not all green shoots grow into trees


Economic metaphors and so-called “buzzwords” should be chosen and used carefully. Words such as “collapse” or “green shoots” are being used these days to describe the financial market condition, and show that mixed economic data can lead to misinterpretations.


Tough analogies do important work — they make us understand — they are not rigorous terms and they can also have knock-on effects. Te danger of the analogy- packed way we choose to discuss the markets is that, from there we make some pretty hard-core decisions.


We’ve read a lot about a new recession being just around the corner, as financial markets appeared weaker since October. Te words “Free Fall” or “Collapse”, which have oſten been used in the media over the last months, could have a strong impact on investors decisions. Analysts and economists now talk about a remarkable


“market recovery”


being started, and others like to use colorful metaphors talking about a


banks have chosen to take a neutral position. Te Federal Reserve went from balance sheet reduction and rate hikes in December to a neutral stance, and Draghi has also changed the risk assessment, joining the new “wait-and-see” attitude.


In this issue, we look at the FED’s dramatic about-face, which marks a significant change in monetary policies, where QE and QT are no


new “Green Shoots” hypothesis.


Tese mixed interpretations show that the causes and triggers of the equity market slide in Q4 still haven’t been fully understood. And during these current uncertain times, central


longer being used as emergency measures but are becoming routine tools for managing the money supply. The Fed is now realizing that it cannot bring its balance sheet back to “normal” and that it must keep pumping new money into the


banking system to avoid a recession.


Tis, however, is not helping the $5.1-trillion- a-day foreign exchange market, which is suffering from central bank decisions to move in tandem, and keep interest rates low for longer. Policymakers moving to press pause on policy tightening in 2019, as well as broadly mixed messages from the


biggest economies, have combined to suppress already-low volatility to levels not seen in five years.


Higher spikes in


other asset classes, described with magnifying metaphors,


volatility in arouse


investor nerves, but have not spilled over into bigger swings in the prices of currencies.


Emmanuelle Festa Bianchet FX TRADER MAGAZINE April - June 2019 5


FX


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