The follow up reaction to last Thursday’s ECB meeting was interesting, Draghi was not cautious enough on euro strength and as suspected the market’s reaction was to just continue as it was, pressing euro higher. What was also interesting however, was the lack of drive behind the single currency and the eventual pull back suggesting the euro may be putting a top in place. EURUSD pressed fresh highs just below 1.2100 before euro selling finally took hold although we still hold above 1.2000 for now. EURGBP however was slightly different, sterling managing to keep downward pressure on the pair as its looks to press down towards .9060/70 area where there is a confluence of support and broadly the euro is only slightly firmer than pre-ECB levels.
The USD struggled into the close last week, shifting Fed speak, weaker data and generally dovish sentiment weighing on the greenback, pushing the USD index top fresh 33 month lows. The better news however is this is the first Monday in several weeks where the opening sentiment has not been risk off, in fact in the Asian session the Nikkei rallied to one week highs, this helped the USD claw back ground against JPY up over 1% from Fridays lows.
GBP has been content to take its lead from elsewhere, stronger against the weakening USD in recent months yet weaker against the strengthening euro. However, in the last few trading sessions GBP has held some strength in its own right. There has been little in the way of major data, PMI’s were mixed although the composite reading was firmer than expected while Friday’s Industrial and Manufacturing production have helped the pound hold some demand focus. Today is quiet on the data front, however GBP will be focused on CPI inflation data due for release tomorrow with inflation expected to have risen once more to 2.8% from 2.6%. A higher reading will be to the pound’s benefit but unlikely to add too much in terms of lasting trend/direction. EURGBP funds resistance above .9200 where we see sellers while .9070 is a confluence of supports, should we break here acceleration towards .9030/.9000 will likely be fast and then for us, this test our bull/bear range, a break sub .9000 area we favour progression back towards .8750 area.
Markets paid little heed to Draghi’s warning on currency “volatility”, nor the several clear efforts to highlight the ECB can still increase and extend QE should they be required. Should these warning continue to fall on deaf ears and the ECB’s hand be forced into action, then the euro could really face an aggressive sell off but for now focus is back on the next ECB meeting. With that in mind we’ll be closely watching what ECB commentators have to say over the next month, we’ve already seen Coeure cross the wires this morning.
Nothing in terms of major data due today from the Eurozone, while the ECB’s vice president is due across the wires tomorrow. EURUSD still seeing sellers towards 1.2100 while near term support either side of 1.2000 holds for now.