Market News & Insights
18 June 2013

Draghi’s Comments Boost EUR

EUR/USD 1.3386
GBP/USD 1.5685
GBP/EUR 1.1716 (0.8526)
EUR/CHF 1.2329
GBP/CHF 1.4458
GBP/AUD 1.6552

There was a lot of noise yesterday without much happening as market participants continue to speculate on the outcome of the FOMC. The “will they, won’t they taper” story has really reached overkill but it is something we cannot simply ignore as it has such huge implications on the global economy.

Our view remains based on the merits of the US economy. Data from the states has been mixed, through the first quarter there was certainly signs of real growth in the US economy with improvements seen in jobs and housing, consumer confidence and consumption, the second quarter has been less positive and certainly not the one way traffic we saw in Q1.

The US recovery has no doubt slowed, some blame the sequester lagging over from Q1 or the new payroll tax, but US growth has slowed and as such the argument to exit QE or begin tapering has lost some of its backing. We don’t feel that tapering will be a real consideration until after the summer towards September/October and as such still favour a build-up of USD strength as this approaches. In the short term however the greenback remains volatile to headline driven news as we approach the FOMC decision tomorrow with the meeting starting today.

Mario Draghi has been on the wires this morning saying the ECB are willing to keep an open mind with regards to forward policy and non-standard measures for the Eurozone, indicating the ECB does have some fire power left should conditions require it, if anything the EUR has been slightly stronger since the comments. The EUR has been the strongest performing of the majors this year and Draghi’s vow to do whatever it takes to support the single currency still carries weight.

The pound remains relatively firm as the BOE begins a period of change with Mervin Kind stepping down and Marc Carney taking office in the BOE in July. Carney’s first meeting will be the July 4th BOE policy decision and with inflation targeting coming on to the BOE’s agenda, today’s inflation figures from the UK will likely be centric to discussions. YoY CPI is expected to show price growth of 2.6%, up from 2.4%. News flow from the G8 may also have some impact as global leaders discuss Tax and foreign relations.

The Eurozone calendar is topped by the German ZEW survey which gauges economic sentiment, the figure is expected to show a pick up for June, especially with upward revisions to German GDP for the 2Q. Later in the US session we have CPI data and Housing Stats. There is plenty of rationale for further volatility; we will keep our clients updated on moves.

EUR stronger this morning following Draghi. EURGBP failed to break below .8475, has broken back above .8500 this morning with resistance to the topside coming in ahead of .8550. EURUSD tested last week’s highs towards 1.3390 yesterday but failed to break above 1.3382, this morning’s stronger EUR is looking at taking another run towards 1.3400 with support between 1.3300/20.

GBPUSD once again broke to fresh highs above 1.5750 yesterday but the sell off above 1.5700 occurred again as this pair faces selling pressure after every new high. Support again is at 1.5750 with support to the downside at 1.5661 and 1.5621.