ECB President Mario Draghi sounded notably dovish in yesterday’s press conference, the Euro had been advancing into the press conference but quickly sold off as Draghi sounded cautious about risks and provided the old ECB promise to use everything within their mandate to help support the region. The USD covered all bases throughout the day, the greenback began to surge as Mario Draghi took the stage, the combination of Draghi’s dovish comments and firmer data prints from the US helped the dollar rally, before it eventually gave back all gains to close the door lower. In equities it was a similar story, as profit taking ahead of Trump’s inauguration saw sellers emerge with major bourses closing in the red, the Dow now down five days in a row while the S&P is back to almost flat for the month of January. As we end the week and await huge potential market risk later today, many of our major currencies looks somewhat brow beaten to end the week. The USD has been knocked by Trump comments on a strong USD as well as some concern about the future of the US economy and despite trying several times to regain a foothold, the USD index is down almost 1% on the week. The Euro has felt some pressure since yesterday’s ECB meeting and once again dovish comments keep a lid on Euro strength and while we saw one of the best 1 day performances out of GBP on Tuesday, the pound has since struggled for any meaningful strength as markets continue to try and digest what exactly Brexit may mean for the pound.
It has been quite a busy week for Fed speak, with a number of key FOMC members crossing the wires. The interesting point however, has been the USD remains weaker despite some upbeat sentiment. The most notable was from Janet Yellen, who one again outlined the possibility for several rate hikes through 2017, and while many took this as hawkish sentiment she was also very cautious to outline this was dependent on data and the expected impact of Trumps Fiscal plans, which we know nothing about really. Yellen was across the wires once again last night and while once again pointing to the potential for rate hikes, she outlines concerns and risks to this view, this was further supported by comments from the Fed’s Williams, who noted they did not want to dampen recovery by raising too fast, but at the same time they did not want to create risks to the economy by remaining overly accommodative for too long. Not much room left on the fence it would seem. It likely all boils down to the markets interpretation of Trumps Fiscal plans, his nominated Treasury Secretary made comments on the value of a stronger USD in the longer term and policies would reflect this, but wouldn’t comment on short term movements, although he quickly backtracked later suggesting that in the shorter term time frame, a stronger USD could potentially cause issues for the US economy. Clear as mud from the would be Treasury Secretary, who already has a questionable approach to business ethics and the use of offshore entities to funnel earnings from his funds.
Many were looking for the ECB to have discussed tapering, hence the rally in the single currency up to the press conference. If anything they received the opposite message from the ECB President who highlighted several risks, stating that current inflation figures were overstating the real inflation environment and that the ECB were weary of downside risks and would adjust policy as necessary, and remain ready and willing to expand and extend current asset purchases, or use any other form of mandated easing to support the Eurozone region. Needless to say this started euro selling and while we saw some recovery against the USD, EURGBP is now looking to set up below .8680 with interim support down towards .8605 and .8585 area offering confidence of moving averages likely to provide further support. EURUSD continues to find sellers towards 1.0700, while support towards 1.0580 provides buyers some opportunity.