So what do you think is the strongest currency? USD, Euro,Yen, Yuan ?

Given the unwieldy nature of European politics, the European Central Bank often under-delivers at crucial moments as it did last week setting the scene for the third largest ever move in EUR/USD.  Nonetheless, the divergence trend remains intact, it’s just that it hasn’t smoothly followed the script market participants had anticipated. All the dynamics for divergence remain in place for it to continue in the short- to medium-term.  Despite cutting one of its key rates further into negative territory and extending its quantitative easing programme – EUR/USD plunged by just over4% as the ECB didn’t go as far as the markets had expected. The lack of policy ‘shock and awe’ reflects divisions on the ECB’s board.  However, Mario Draghi, the ECB’s President, is a big fan of verbal intervention no doubt reflecting his frustrations with often not getting his own way in terms policy, at least in the short-term. The very next day in New York he delivered an extraordinary speech where he talked of his own control over policy, claimed the central bank could expand its balance sheet without limit and talked of monetary dominance – sounding very much like a call of ‘doing whatever it takes’ to defeat the gathering forces of deflation bedevilling the Eurozone.  But for all the hubris, Draghi clearly faces opposition towards ratcheting up quantitative easing, not least from the powerful German contingent on the board who view such tools with deep suspicion. Events in the commodities markets where oil took another hammering due to over-supply will deliver more deflationary pressure on the Eurozone and ammunition for Draghi to win the day over more monetary stimulus. But it will clearly take some time for him to get his way.    Next week it’s the US’s turn to deliver Meanwhile, US Non-Farm Payroll numbers came in at a reassuring, for November making an interest rate increase by the US Federal Reserve all but a done deal for next week. It would take something like a stock market crash or other ‘black swan’ event to derail that. Interestingly, Fed Chairwoman, Janet Yellen talked of the US economy only needing, jobs a month to be created to absorb new entrants to the jobs market. It has been running at double that on average this year.  She also said further delays in raising rates could lead to needing to increase rates even faster latter on. Indeed, if jobs creation does average over a, a month over, it’s quite possible that US rates could be raised several times to reach1.-1.% by this time next year. With the ECB under Draghi looking to increase its monetary stimulus, the path of divergence remains on track for the time being.  But as last week showed it only takes small deviations from the markets’ script to set-up some almighty moves. Factors, which could shatter expectations on US rates are nervous equity markets, increasing geopolitical instability, growing deflationary pressures and disappointment on global / US economic growth. They could all weigh on US interest rate expectations creating a risk that the US convergences towards rather than diverges away from other large troubled economies such as the Eurozone, Japan and China and that would certainly take the wind out of USD’s sales.