Market News & Insights
21 October 2016

Euro plunges as ECB Set December Review

The ECB was the main focus for the day and the Euro had some volatile swings throughout the afternoon, initially rallying over .5% before closing the day lower currently over 1.25% off yesterday’s high levels. The USD also found itself in demand as the USD index rallied to fresh 7 months highs, the greenback in favor as other currencies struggled. The ECB came out with little new, in fact they said they didn’t talk about tapering or additional easing but did suggest the December meeting would be time for a review and echoed the sentiment that QE would remain in place until march at least, and low interest rate would remain to the QE horizon on beyond. This proved supportive for European stocks, with indices closing the day higher as Euro weakness helped demand. The USD was helped by far better than expected Philly Fed data, with existing homes sales also firmer and helping rate hike expectations. EURUSD has dropped back below 1.0900 for the first time since March, while EURGBP is taking a look back below the .8900 level and to two week lows. Broader sentiment has been weaker however, US indices closed the day lower and overnight action saw Asian bourses trade moderately lower as well. European stocks are bucking the trend however, once again opening higher while the euro trades lower.

There was very little new from the ECB yesterday, in fact it almost seemed as if they discussed nothing at all in their policy meeting, highlighting that tapering talk was certainly not on the agenda, while also highlighting they did not discuss extending QE. So why the euro weakness? If anything Drgahi’s suggestions that a decision to review QE would be made by the December meeting, started the euro selling, the single currency broke through a couple of technical levels against the USD. EURUSD now sits within its lower range and our focus is now lower, especially if we can close the week below 1.0940.  Consumer confidence from Europe is due later this afternoon, although unlikely to cause any major shift in Euro sentiment.

It was a mixed day for GBP yesterday, GBPUSD failed to retake 1.2300 area and subsequently sold off as the USD rallied through the afternoon. The pound quickly regained its footing however, if anything action in EURGBP helped GBPUSD higher, cable still holding above the weeks open which would be its first weekly gain in 7 weeks. It was interesting that comments from PM’s May and Hollande did little to rock the nerve of sterling, most notable for their aggression where Hollande’s comment’s saying that if May wants a hard Brexit, then negotiations will be very hard too. A week ago this would have caused GBPUSD to drop 50 pip so perhaps the doom and gloom has subsided for now. Government spending data headlines the UK session but data appears to have had little impact on GBP pairs this week. Technically, support at 1.2210 offer near term intraday levels, while a break above 1.2330/40 while be key if we are to see progression higher.  EURGBP has pushed below .8900 and .8330/40 area attracts as the post flash crash lows.

The USD was in consolidation for much of the week.  Weaker data didn’t quite result in outright USD selling, but yesterday’s better than expected data, and perceived dovish ECB, helped the greenback push to fresh 7 week highs. The data calendar is light for the US today so we’ll be looking for broader risk appetite for direction on the USD, do not be too surprised to see some profit taking into the weekend.