In connection with the entry of a few minutes before <"Draghi's worth knowing words"> I would like to introduce my opinions about the current situation on EUR/USD.
No action by the ECB and the worse than expected data regarding the change in the number of jobs in the U.S. nonfarm, led to the rise of EUR/USD.
At weekly intervals presented the probable area of support <1.3654-1.3670> where the market should turn back <chart 1>.
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| chart 1. EUR/USD weekly, 2014-02-10 |
In addition, I present the opinions of selected investment banks.
Deutsche Bank:
"The ECB left policy unchanged last week, seeing rates sell-off and the euro rally. This notwithstanding, the risks to Eurozone inflation and divergent monetary policy between the US and Eurozone are still worth around 10 big figures lower in EUR/USD this year.
The pushback to this argument is that while Eurozone inflation has fallen, the ECB’s reaction function remains insufficiently aggressive to push down rates far enough, meaning that real yields continue to benefit the euro. Indeed, regressing G10 FX performance with real yields this year, the euro appears bang in line. Much will therefore depend on the determination of the ECB to tackle disinflation from here on in.
What next? The market will need to be convinced that the ECB are determined to tackle Eurozone disinflation. The tenor of data over the coming month will matter (this week’s GDP release will be closely watched), but we may need to wait for the March meeting for any clear direction in the euro. Our economists note that staff forecasts for 2016 will be vital in shaping the Governing Council’s attitude to inflation."
The pushback to this argument is that while Eurozone inflation has fallen, the ECB’s reaction function remains insufficiently aggressive to push down rates far enough, meaning that real yields continue to benefit the euro. Indeed, regressing G10 FX performance with real yields this year, the euro appears bang in line. Much will therefore depend on the determination of the ECB to tackle disinflation from here on in.
What next? The market will need to be convinced that the ECB are determined to tackle Eurozone disinflation. The tenor of data over the coming month will matter (this week’s GDP release will be closely watched), but we may need to wait for the March meeting for any clear direction in the euro. Our economists note that staff forecasts for 2016 will be vital in shaping the Governing Council’s attitude to inflation."
Barclays:
"We continue to expect a rate cut at the March meeting, though we now think that a negative deposit rate is less likely. But we now see a higher probability that the ECB refrains from further sterilisation of SMP holdings," Barclays clarifies.
"By the March meeting, the ECB will have seen more data, including information on credit flows. President Draghi highlighted that banks have most likely been window dressing ahead of the AQR, so they want to see the new data on lending to see whether the bank’s deleveraging has a special seasonal component to it," Barclays adds.
Credit Agricole:
The EUR has been supported of late, mainly due to a less dovish than expected ECB press conference and because weaker than expected US labour data may have increased uncertainty among investors regarding the Fed’s stance on reducing QE further. However, we do not expect the latest labour data to have a sustainable currency impact. This is especially true as the latest data may be strongly affected by bad weather conditions.
Elsewhere, ECB President Draghi stressed that more evidence of worsening conditions is needed before additional policy action is considered. However, we stick to the view that the ECB will act again should inflation expectations fall further. This in turn should keep both investors’ ECB rate expectations and the single currency capped.
Elsewhere, the German Constitutional Court will issue its OMT-related ruling on 18 March. We do not expect demand for the EUR to rise strongly ahead of the ruling. This is especially true as any negative outcome would be to the detriment of both equities and the EUR. It must be considered that asset allocation flows towards EUR-denominated risk assets have been one factor limiting currency downside.
Elsewhere, ECB President Draghi stressed that more evidence of worsening conditions is needed before additional policy action is considered. However, we stick to the view that the ECB will act again should inflation expectations fall further. This in turn should keep both investors’ ECB rate expectations and the single currency capped.
Elsewhere, the German Constitutional Court will issue its OMT-related ruling on 18 March. We do not expect demand for the EUR to rise strongly ahead of the ruling. This is especially true as any negative outcome would be to the detriment of both equities and the EUR. It must be considered that asset allocation flows towards EUR-denominated risk assets have been one factor limiting currency downside.
trade safe,
best regards,
oscarjp
The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any opinion offered herein reflects oscarjp-chrimatistikos current judgment and may change without notice. Users acknowledge and agree to the fact that, by its very nature, any investment in shares, stock options and similar and assimilated products is characterised by a certain degree of uncertainty and that, consequently, any investment of this nature involves risks for which the user is solely responsible and liable.
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