Market News & Insights
6 February 2017

Euro Vulnerable to Mario Draghi

There was plenty going on once again on Friday to focus attention on, across the world there were some mixed performances in markets throughout the week as risk struggled for any real direction but Friday saw a shift towards the positive. In Europe, following a mixed week, stocks managed to trade higher and earnings season buoyed appetite. In the US, attention for the USD was on the NFP, despite stronger headline figures weaker wage growth saw the greenback under some selling pressure. US stocks however, pressed higher as the possibility of lower interest rates for longer, some good earnings and President Trumps’ plans for deregulation all favored a strong demand for assets. This positivity carried into the overnight Asian session to welcome in the week, again bank stocks leading the charge as deregulation spurs their demand, although a stronger JPY kept a lid on the Japanese advance.

Fridays NFP posted some 227k jobs added to the US economy through January, following the ADP beat earlier in the week. But despite that, the USD dropped as wage growth figures were weaker than expected at 2.5% down from 2.8%. Some hawkish comments from later in the day helped the USD rebound into the close as the Feds Williams commented that he saw all FOMC meetings as ‘live’ for possible rate hikes and that he sees arguments to raise rates in in March, this is worth taking with a pinch of salt in my views, Williams has always been a vocal hawk and unless I see the rest of the Fed coming out with similar rhetoric I’ll remain skeptical of March hikes. US data is light for the first half of the week so it will be all eyes on Trump and US politics. EURUSD continues to find sellers above 1.0800 and this is likely to remain the case with spikes higher providing Euro sellers opportunity for value, while 1.0730/1.0680 area needs to give way if we are to see further downside. GBPUSD is well off last week’s highs following Fridays BOE meeting and inflation report, rallies above 1.2500 appear to favour GBP sellers emerging, but we need to see 1.2400 break to turn bearish again.

We continue to see Euro as a second hand currency at the moment, while it may benefit from some safe have flows, it will continue to have the ECB standing behind them and with the potential for further easing, its strength remains limited, or at least restricted somewhat. Investor confidence is on the data calendar today for the region but attention will be on ECB president Mario Draghi as he is due to speak in parliament in Brussels. His tone was notably dovish in the last ECB meeting and while inflation appears to be on the rise, ECB members have been warning that this only transitory as fuel prices rise and overstates the true value, should he talk again of easing or mention the prospect of additional measures then the Euro will almost certainly find itself facing some selling pressures. EURGBP however remains buoyant, holding above .8600 for but with sellers lines up all the way from .8650 up to .8705. .8580/90 area has a host of moving averages lined up so should provide support technically, however a break will see movement back towards .8470/.8500 area which marks last weeks to January lows.