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EURUSD GAP down this morning, showing signs of weakness.
Euro Drops Versus Dollar, Yen as Draghi Warns of ECB Stimulus
The euro weakened versus the dollar and the yen after European Central Bank President Mario Draghi said a further appreciation in the currency would trigger more monetary stimulus.
The 18-nation shared currency fell from the strongest in almost four weeks against its U.S. counterpart as Draghi’s statement was echoed by other ECB officials in weekend meetings of the International Monetary Fund and World Bank. The dollar, the yen and the Swiss franc advanced against their higher-yielding peers as geopolitical tensions in Ukraine escalated.
“Draghi’s comment may be arresting the euro appreciation for now but is unlikely to weaken it unless he takes action,” said Athanasios Vamvakidis, head of Group-of-10 currency strategy at Bank of America Merrill Lynch in London. “The situation in Ukraine has probably deteriorated beyond what the market was expecting and that’s driving safe-haven currencies such as the yen, the franc and the dollar higher. I don’t think the market has at this point priced in further escalation.”
The euro fell 0.5 percent to $1.3822 as of 10:14 a.m. in London after climbing 1.3 percent last week, the biggest advance since the period ended Sept. 20. It appreciated to $1.3906 on April 11, the strongest level since March 19. Europe’s 18-nation currency lost 0.4 percent to 140.59 yen. The dollar was little changed at 101.72 yen.
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German yields hit 10-month low after Draghi warns on strong euro
Yields on government debt fell across the euro zone on Monday, with those on Bunds hitting 10-month lows after European Central Bank President Mario Draghi said a stronger euro might trigger further monetary easing.
In the clearest signal yet the ECB was prepared to launch a stimulative asset-purchase programme, Draghi said the exchange rate had become increasingly important to policy as inflation was closer to zero than to the bank's target of just below 2 percent.
Draghi's French colleague Benoit Coeure said the bank was ready to buy assets if deemed necessary. But he also said the fragmentation of the euro zone economy meant purchases of a single asset class, such as government bonds, could not be assumed to affect interest rates across all classes.
Italian 10-year bond yields fell 3 basis points to 3.19 percent, within touching distance of record lows. Spanish yields fell a similar amount to 3.16 percent.
"The market is still playing the bet that the ECB is going to do something," said Alan McQuaid, chief economist at Merrion Stockbrokers in Dublin.
German Bund yields, the benchmark for euro zone borrowing costs, were one basis point lower on the day at 1.50 percent, having dipped to a ten-month low of 1.491 percent earlier. The euro was a touch softer at $1.3856 but remained close to its strongest levels this year.
Despite Draghi sending a strong message to investors, the moves were relatively subdued, with analysts saying the market had sensed a lack of consensus among ECB policymakers over how to pursue any asset purchase programme.
"The overall message was that the ECB doesn't know what QE (quantitative easing) would look like, but they see it as a viable policy option," said Lyn Graham-Taylor, rate strategist at Rabobank.
Quantitative easing is jargon for central banks buying assets with newly printed money.
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Strong euro adds pressure on Draghi to initiate further monetary stimulus
Wednesday’s Eurozone CPI inflation report is expected to act as a pivotal point for monetary policy in the region, with inflation actively impacting monetary policy.
While the European Central Bank (ECB) has previously failed to act to stimulate the economy despite falls in CPI to 0.5%, should the rate fall even lower this week ECB President Mario Draghi may find his hand forced to implement further monetary easing.
The strong euro is counterproductive to the region’s economic recovery, making exports less appealing to foreign investors and pushing inflation down.
Benoît Cœuré, ECB Executive Board member, has revealed that the ECB could buy a broad range of assets with maturities of up to 10 years should a program of further monetary easing be implemented. Even though Draghi himself stated that “A strengthening of the exchange rate requires further monetary stimulus,” analysts expect him to cut interest rates before he implements any additional monetary easing. The euro dropped 0.24% against the US dollar in early trading on Monday to be 1.3851 in response to Draghi’s comments; however it remains to be seen how long the central currency will remain down.
The US CPI inflation data will also be released on Tuesday with the market closely looking to see whether inflation will grow from last month’s rate of 1.1%. A rise would further support the Federal Reserve’s continued tapering of quantitative easing, however disinflation could throw their plan off course. Fed Chairwoman Janet Yellen is due to speak on two occasions at events this week and these speeches will offer market participants the chance to observe any changes in tone from Yellen in relation to monetary policy and the timing of any prospective interest rate cuts. The EUR/USD pivot point is 1.3843, with resistance levels at 1.3850, 1.3859 and 1.3866, and support levels at 1.3834, 1.3827 and 1.3818.
Some volatility is also expected from the British pound on Wednesday with the release of the monthly jobs report. The state of the employment market is one of the key indicators of economic health and any strong deviation from previous data may affect the Bank of England’s (BoE) forward guidance on monetary policy. Last month’s unemployment rate was 7.2% and the new figure is forecast to be 7.1% with the claimant count expected to drop from 34.6k in January to 30k this month. The GBP/USD pivot point is 1.6728, with resistance levels at 1.6734, 1.6745 and 1.6751, and support at 1.6717, 1.6711 and 1.6700.
The Japanese yen has benefited in early trading from greater demand for safe haven assets off the back of fresh tensions between Russia and Ukraine, with JPY up 0.1% against the EUR and 0.3% against the USD. Bank of Japan Governor Kuroda will no doubt be concerned about the strengthening yen and he is expected to reinforce the need to push the yen lower in order to boost exports when he gives two speeches this week on Wednesday and Thursday. Market participants will also be looking to these speeches to see any indications from Kuroda of plans to increase the amount of asset purchases to offset the impact of the new sales tax that came into effect on 1 April. The USD/JPY pivot point is 101.59, with resistance levels at 101.66, 101.69 and 101.76, and supports at 101.55, 101.49 and 101.45.
The Asian market will also be eagerly awaiting the release of GDP figures from China on Wednesday. A fall from 7.7% in Q4 2013 is expected, with analysts forecasting a rate of 7.3% for Q1 2014. Any weakening in the Chinese economy is likely to have knock-on effects to other nations, with the Australian dollar especially likely to come under pressure.
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ECB prepared to ease if inflation low for too long -Noyer
The European Central Bank stands ready to take unconventional policy steps to fend off a too-long period of low inflation, though for now it expects inflation to slowly rebound, an ECB policymaker said on Monday.
"Should we note a deviation from this path, we will use every instrument within our mandate, including unconventional ones, in order to cope effectively with risks of a too prolonged period of low inflation," European Central Banker Christian Noyer told a luncheon at the New York Stock Exchange.
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Euro Falls on Draghi’s Stimulus Signal
The euro dropped against 14 of its 16 major counterparts after European Central Bank President Mario Draghi said further appreciation in the currency would trigger more monetary stimulus.
The dollar had the biggest gain in more than three weeks versus Europe’s shared currency as U.S. retail sales rose in March by the most since September 2012. Brazil’s real climbed versus most major peers on bets the nation’s interest rates, which it has raised nine times in the past year, will attract investors. Russia’s ruble fell for a third day versus a target basket of dollars and euros as unrest in Ukraine escalated.
The market is “definitely paying attention to the comments, but at the same time they’re struggling to understand what the real message is and how clear the easing signal is,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, said in a phone interview. “We had some solid U.S. data as well, so that was supportive of the dollar.”
The euro weakened 0.5 percent, the most on a closing basis since March 19, to $1.3821 at 5 p.m. in New York. It appreciated to $1.3906 on April 11, the strongest level since March 19. The 18-nation currency declined 0.3 percent to 140.76 yen. The dollar gained 0.2 percent to 101.84 yen.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, advanced 0.2 percent to 1,008.01 following a 1 percent loss last week.
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EUR/USD: It's A Tug Of War
The Tug of War in EUR/USD
A tug of war is shaping up in the EUR/USD with jawboning by European policymakers putting downside pressure on the pair and the recent decline in U.S. yields providing upside support. Both of these forces are strong and significant enough to keep EUR/USD confined within a 1.36 to 1.40 trading range. Based on this weekend’s comments from ECB officials, European policymakers do not want to see the EUR/USD trade above 1.40 and if it gets there, the chance of ECB easing will skyrocket. The central bank may not be serious about Quantitative Easing but they are very serious about talking down their currency. In fact Mario Draghi’s comment that “the strengthening of the exchange rate requires further monetary stimulus” is one of the central bank’s strongest warnings against a rising currency. The big problem created by the strong euro is low inflation, which if you recall, was the primary reason motivation for the ECB’s interest rate cut in November. According to an estimate provided by the ECB 2 weeks ago, inflation is reduced by 0.4% for every 10% rise in the euro. If not for the currency’s appreciation, inflation would be closer to 1% now instead of 0.5% according to ECB member Noyer. So while policymakers have made it clear that QE is an option in theory, in reality they have a number of ways to ease monetary policy including a reduction in the refi or deposit rate, narrowing the interest rate corridor and ending SMP sterilization. If the currency pair resumes its rise above 1.39, we see an 80% chance of more stimulus in June.
Jawboning by policymakers and the risk of more stimulus should be enough to put a top in the EUR/USD but unfortunately there are other factors at play that are out of the ECB’s control. With the European Sovereign Debt crisis in the distant memory, capital inflows are returning to Europe, creating demand for euros. At the same time, there is very little upside momentum in U.S. yields even after today’s strong retail sales report. For EUR/USD to break out of its 1.36 to 1.40 trading range the ECB needs to ease or U.S. yields need to recover, sending EUR/USD sharply lower but if 10-year Treasury yields drop below 2.5%, the central bank may not be able to prevent EUR/USD from rising above 1.40.
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German ZEW falls to 43.2 points – EUR/USD pressured under 1.38
ZEW disappointed in the headline but surprised in the current situation component. The headline Economic Sentiment figure dropped to 43.2 points while the Current Situation actually improved to 59.5 points. The important German ZEW Economic Sentiment Index for April was expected to remain at similar levels to last month’s 46.6 points. The “Current Situation” sub component was predicted to remain around 51.3 points. The all European figure was expected to tick down from 61.5 points.
EUR/USD was pressured towards the release, trading just under 1.38. It immediately fell to new lows of 1.3789, but recovered back to the round number of 1.38. It seems unable to retake previous levels, but the numbers are not too bad to trigger an extension of the fall.
The positive number reflects expectations for improving economic conditions. The euro continues suffering from the strong comments by Draghi, that warned about further stimulus on further euro strength.
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Hey dear members...
Could you please tell me wich NEWS of economic calender will have a big impact on the EUR/USD
Like yesterday the USD Unemployment Rate (FEB), USD Change in Non-farm Payrolls (FEB)?
I need to know wich news will make the eur fall or rise that much !
Thx
You should always check the economic calendar for the USD or EUR high impact news.
EUR/USD remains moderately lower after U.S. data
The euro remained moderately lower against the U.S. dollar on Tuesday, after the release of higher-than-expected U.S. inflation data and a disappointing manufacturing report from New York.
EUR/USD hit 1.3791 during European afternoon trade, the pair's lowest since April 9; the pair subsequently consolidated at 1.3803, slipping 0.13%.
The pair was likely to find short-term support at 1.3780, the low of April 9 and resistance at 1.3863, Monday's high.
Official data showed that U.S. consumer price inflation rose 0.2% in March, exceeding expectations for a 0.1% gain, after a 0.1% uptick the previous month.
Core consumer price inflation, which excludes food and energy, rose 0.2% last month, more than the expected 0.1% increase, after a 0.1% gain in February.
A separate report showed that the Empire State manufacturing index fell to 1.3 this month, from a reading of 5.6 in March, compared to expectations for a rise to 8.2.
The single currency came under pressure earlier, after data showed that the ZEW index for German economic sentiment fell to an eight-month low of 43.2 this month, from a reading of 46.6 in March. Analysts had expected the index to decline to 45.0 in April.
Meanwhile, investors remained cautious as the U.S. and the European Union said that they are considering further sanctions against Moscow after pro-Russian separatists on Monday ignored an ultimatum to leave occupied government buildings in eastern Ukraine.
Market participants were eyeing a meeting scheduled on Thursday in Geneva between the U.S., the EU, Ukraine and Russia, with hopes it will bring a political resolution to escalating tensions in Eastern Europe.
The euro was also lower against the pound, with EUR/GBP edging down 0.15% to 0.8250.
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