USD In Demand On Draghi’s Comments
Swissquote Bank Ltd | Jan 22, 2016 05:30AM ET
As broadly expected, the ECB left its rates unchanged. The market, however, wasn’t expecting such a dovish message from Mario Draghi. ECB’s president emphasised downside risks to inflation, citing: “heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets, and geopolitical risks". "In this environment, euro area inflation dynamics also continue to be weaker than expected”. As a result, EUR crosses dropped sharply during the press conference as Draghi made clear that a reconsideration of the ECB’s monetary stance will be necessary at the next meeting in March. EUR/USD fell one figure and a half, down to 1.0778, while EUR/JPY plummeted to a 9-month low at 126.17.
Nevertheless, we have the feeling that the market took Draghi’s comments with a grain of salt this time, in an attempt to avoid repeating the mistakes of December 3. As a result, EUR crosses returned to their pre-ECB meeting level; however, the bias is now on the downside for the single currency, especially against the USD and the JPY. In addition, we wouldn’t be surprise to see a reversal of commodity currencies versus the euro once pressure on commodity prices has eases and financial markets stabilised. EUR/AUD has already dropped 2.40% since the press conference, a support can be found at 1.5341 (low from January 13) but once broken, the road will be wide open toward the next one lying at around 1.50.
In Asia, regional equity indices are wearing green this morning as a wind of optimism is blowing across financial markets. Obviously, today’s recovery in crude oil prices is undoubtedly pushing equities higher. Futures on the West Texas Intermediate were up 4.27%, while ones on the Brent climbed 5.0%, both back above $30 a barrel. In Japan, the Nikkei 225 gained 5.88%, while in Hong Kong, the Hang Seng was up 3.14%. In mainland China, the rally is less pronounced with the Shanghai and Shenzhen Composite rising 1.25% and 1.46% respectively. In Europe, futures are pointing to a higher open with the FTSE 250 up 1.49%, the DAX +2.19%, the CAC 40 +1.76% and the SMI +1.76%.
In the FX market, the USD is broadly in demand this morning as safe-haven currencies and the euro go south. As explained above, Mario Draghi’s dovishness should have a limited effect on the single currency as traders want to avoid over-pricing a potential extension/increase of the QE. Most EUR crosses will therefore remain in a volatile range, with asymmetrical risk to the downside, until D-day on March 10.
Get The News You Want
Today traders will be watching Markit manufacturing PMI from France, Germany the Eurozone and the US; retail sales from Germany, Canada and the UK; mid-month inflation report from Brazil; CPI report from Canada; existing home sales and Leading index from the US.
/h3
EUR/USD
R 2: 1.1387
R 1: 1.1095
CURRENT: 1.0833
S 1: 1.0458
S 2: 1.0000
GBP/USD
R 2: 1.5242
R 1: 1.4969
CURRENT: 1.4237
S 1: 1.3657
S 2: 1.3503
USD/JPY
R 2: 125.86
R 1: 123.76
CURRENT: 118.07
S 1: 115.57
S 2: 105.23
USD/CHF
R 2: 1.0676
R 1: 1.0328
CURRENT: 1.0101
S 1: 0.9786
S 2: 0.9476
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.