Yesterday trading in EUR/USD and USD/JPY was confined to tight ranges. Investors counted down to today’s ECB press conference. Risk sentiment remained constructive in Europe and protected the downside of the dollar. EUR/USD closed the session at 1.1339 (from 1.1346 on Tuesday). USD/JPY ended the day at 119.93 almost unchanged from 119.84. Overnight, most Asian equities indices record moderate losses joining the correction in the US. The, albeit moderate, setback of Asian equities blocked the attempt of USD/JPY to regain the 120 barrier. It trades now in the 119.65 area. Today, the calendar is well filled. In the US, initial jobless claims, regional confidence, the FHFA housing price index, the existing home sales and the leading indicators will be published. We see slight downside risks for the existing homes sales. There is a big deviation from consensus needed to have a lasting impact on global markets/USD trading. The focus will be on the ECB policy decision and on the press conference of ECB’s Draghi. Never say never, but it is too early for the ECB to raise policy stimulus. Draghi was very soft at the September press conference. He will need to be ‘credibly soft’, giving market confidence that more easing is still likely in the near future. Draghi has a good track record on guiding markets and avoid disappointments. However, if he fails the risk is for the euro to return higher in the established range (1.17). The jury is still out, but in a day-to-day perspective, the downside in EUR/USD might be difficult. Also keep an eye at the equity markets. Yesterday’s correction in the US may be a first indication that the risk-on rebound is running into resistance. If so, it might be a slightly negative for the dollar, too. In a longer term perspective, global markets struggle to assess the health of the global economy and its impact on monetary policy. Of late (currency) markets were focused on the impact of weaker US data on the Fed rate hike path. That made the dollar vulnerable. However, in absence of key US eco data this week, attention turned to today’s ECB meeting. Markets are already positioned for soft ECB speak. The 1.1460/95 resistance was extensively tested, but the test was rejected, making the topside in EUR/USD better protected. First support for EUR/USD stands at 1.11. In a longer term perspective, if the policy divergence between the Fed and the ECB becomes less outspoken, EUR/USD may return toward the August correction high at 1.1719. USD/JPY looks more vulnerable to a delay in the Fed rate hike cycle in case of risk-off and/or rising volatility. Yesterday, sterling trading was little enticing. The UK monthly public finance data were slightly better than expected. However, the report had no lasting impact on sterling trading. Both cable and EUR/GBP were driven by technical considerations and by the intraday swings of the dollar. Late in the session, BOE governor Carney addressed the implications for the BoE from the EU referendum. Carney stressed that it was not appropriate for the BoE to act as a referee in the EU referendum debate. At the same time he indicated that the UK was a big beneficiary from the EU single market and that the BoE will take appropriate action if the developments linked to the referendum ask for it. Sterling lost slightly ground after the Carney comments. Cable closed the session at 1.5417 (from 1.5444). EUR/GBP ended the day at 0.7354, from 0.7346. Today, the UK retail sales will be published. A decent 0.4% M/M and 4.8% Y/Y is expected. We don’t have strong arguments to distance ourselves from consensus. Of late, the market pushed expectations for a BoE rate hike further out into 2016. Given the soft positioning of the interest rate markets, sterling might profit from a decent retail sales report. Of course , the price swings in the euro due to the ECB press conference will also affect EUR/GBP trading. Looking at the broader picture, the downside in sterling (EUR/GBP 0.7483/0.75 strong resistance) looks better protected. At the same time, a dovish ECB might help to extend the recent decline in EUR/GBP short-term. From a technical point of view, EUR/GBP tries to sustain south of the 0.7333 short-term support. A drop below 0.7333 paints a sterling bullish double top on the charts, which could extend the decline in EUR/GBP towards 0.72 (tough resistance for sterling). Some further sterling gains against the euro might be on the cards short-term, but we expect the pair to maintain the established ranges.
EUR/USD is little affected by the modest stock market correction. The pair trades little changed (1.1334/40 area), awaiting the ECB press conference. A soft statement from the Bank of Canada and a decline in oil prices is weighing on the Canadian dollar. USD/CAD returned north of 1.31. Sterling slightly lower after Carney comments
ECB press conference key for currency trading
No comments:
Post a Comment