GBP/EUR 1.3926 (0.7181)
The most exciting event of yesterday’s session was not directly market related but did occur at the ECB meeting, what was expected to be a rather dull affair sprung to life as a protestor mounted the table in front of ECB president Mario Draghi shouting “end the ECB dictatorship”, as Draghi cowered in shock . Once the situation had been dealt with Mario Draghi continued like the true professional he is and delivered a statement very much on par with what was expected, if not slightly more upbeat. In fact, for most of the press conference EURUSD traded within a range of less than 40 pips, one of the smallest ranges traded during an ECB statement in some time.
In the US, weaker than expected data knocked the USD, industrial production data and USD empire manufacturing figures were both worse than expected, while the Fed’s beige book was perhaps not positive enough for those calling for mid 2015 US rate hikes, resulting in USD selling. In overnight trading the tone was positive, in Asian and Australian markets equities rose, as did the AUD, boosted by better than expected Australian labour market data. The Australian economy added 37.7k jobs through March vs 15k expected, with the unemployment rate dropping to 6.1% from and expected 6.2%.
In the US focus is now heavily on data and for the most part key releases appear to be coming in lower than expected. Industrial production declined -.6% through March, the biggest decline in 2.5 years. In our view US data is not consistent enough to warrant the USD testing near 12 year highs and while many appear unwilling to see past Fed rhetoric for rate hike guidance, the data would argue the Fed are unlikely to raise rates until much later in the year (at the earliest). The Fed’s Beige Book of economic activity was also released last night and despite some positivity there were concerns highlighted, namely a stronger USD, falling oil prices and a harsh winter, we have seen many analysts begin to downgrade their growth expectations for the US for 2015, certainly not the type of environment conducive to rate increases. On the data front from the US we have housing data, weekly jobless claims and the Philly Fed all set for release this afternoon with plenty of Fed speakers backing up the day later this evening.
The ECB kept rates at ultra-low levels as expected and promised to keep their QE program in place until September 2016 or until they see a sustained adjustment in the path of inflation consistent with the 2% medium term target set by the ECB. One interesting point to note from yesterday’s meeting was the linking of the QE program to inflation, obviously this was always known but the latter part of the comment could suggest earlier tapering of the program should inflation rise faster than forecast. Draghi did point out that despite recent rebalancing in the region, risks still remain to the downside. Despite the ECB president warning that recent improvements in data do not warrant a change in ECB policy, and any such suggestions are premature, attention will still be firmly fixed on tomorrow’s CPI inflation reading for the region. Today the data calendar is light and as is the way these days EUR traders will have one eye on anything Greece related.
In major currency pairs larger ranges appear to remain in play. EURUSD continues to trade between 1.0500 to 1.1000, while GBPUSD is stuck in pre-election range of 1.4500 to 1.5000. EURGBP is pressing back towards recent lows but the larger range is still .7000 to .7400. Only a break either side of these larger ranges will start a new trend as for now markets appear content to trade within these bands. That being said, EUR weakness is expected to prevail through the year, but in the short term may get a boost from improving inflation readings so we will be watching that release tomorrow very closely.