Today is all about the ECB, certainly for the euro. The concern is, Eurozone growth has started to slow, industrial and manufacturing output is down, confidence measure across the region are sliding and inflation remains frustratingly well below the ECB’s 2% target. Last month the ECB cited some concern on the euro’s value impacting inflation growth, and the ECB will have to be wondering what more they can do for a region that has ultra-high accommodation for a considerable period. For their part ECB rhetoric would say the region is balancing out following the best run of growth in 10 years, however with all these factors to take in consideration it’s difficult to find merit in tightening happening anytime soon. Last year the euro soared over 10% on a weighted basis (EURUSD low to high run covered over a 21% range) on the assumption the ECB would be winding down QE, their current scaled back asset purchase program is scheduled to end in September with many now expecting this to be extended to year end. That will effectively bring us out over a year from when QE was initially expected to end, with rate hikes pushed further down the curve as a result. The big question on everybody’s lips now is, are the ECB concerned with the current slowdown, and will this result in a shift in their policy to a less hawkish stance?
EURUSD traded back as low as 1.2160 yesterday and 1.2154 marks the lowest level since Jan 12th, that area marks support and the break lower will target the year’s lows back towards 1.1900. 1.2290 provides light resistance to a press higher but above 1.2400 marks an area where sellers will be lined up and EURUSD will almost certainly retrace from. EURGBP sitting at the familiar .8730 area, there are various levels of support on the way down, .8710, .8700, .8686 and recent lows towards at .8620. That likely limits downside for EURGBP, while .8790/.8800 acts as resistance to moves higher which has held for over a month.
There’s really very little happening with the pound this week, certainly not fundamentally as we might have expected. No less than 4 BoE speakers have come and gone with little comment on policy. Data points have been overlooked by larger events elsewhere and even Brexit related headlines have had minimal impact. However a vote in parliament today, or perhaps its more of a debate on whether the UK should form a custom union. This is non-legislative and non-binding but will provide some colour on sentiment in parliament and cover some concerns that may arise down the road.
Stateside and the USD index confirmed its breakout, trading at the highest levels we’ve seen since it broke down on January 12th. The 10 year US treasury holds above 3% yield and the greenback in basking in strength as a result. That being said the dollar can still find itself exposed. US President Trump has often been vocal on the dollar’s strength impacting trade, and the continued appreciation of the USD will also put many top FX trades under question as traders and market participants positioned for a weaker dollar this year. Inflation in the US still remains the Fed’s core focus but we have trade balance data and durable goods orders as well to get our attention this week. A decline in durable goods is expected while some slight improvement in the trade balance is predicted by analysts. GBPUSD continues to hold below 1.4000, 1.3888 area offering next support, while 1.3700 are is likely the bull/bear line.