Eur/usd - page 95
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EUR/USD steady, near 1-week lows
The euro was steady against the U.S. dollar on Friday, hovering near one-week lows as Thursday's comments by European Central Bank President Mario Draghi continued to weigh on the single currency.
EUR/USD hit 1.3832 during late Asian trade, the pair's lowest since May 2; the pair subsequently consolidated at 1.3833, easing 0.05%.
The pair was likely to find support at 1.3777, the low of April 30 and resistance at 1.3885, the high of May 5.
The single currency came under pressure after Mario Draghi said the ECB governing council is comfortable with acting at its next meeting, after the bank has published fresh forecasts for inflation and growth.
Speaking at the ECB’s post-policy meeting press conference, Draghi said that recent weakness in inflation has been due to food and energy prices, but added that the strong euro and weak domestic demand are also pushing down inflation.
He reiterated that the ECB does not have a target for the euro exchange rate, but said that the bank would closely monitor exchange rate developments.
Meanwhile, the dollar remained supported after the U.S. Department of Labor on Thursday said the number of individuals filing for initial jobless benefits in the week ending May 3 fell by 26,000 to 319,000 from the previous week’s revised total of 345,000. Analysts had expected jobless claims to fall by 20,000 to 325,000 last week.
The euro was little changed against the pound, with EUR/GBP dipping 0.02% to 0.8172.
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Draghi Sets Clock Ticking for June Stimulus by ECB
Mario Draghi has given himself a month to craft a new fix to the European Central Bank’s deflation angst.
Cutting the euro area’s benchmark interest rate to a record tops the list of options for the ECB President after he lined up fresh monetary stimulus for June. Other potential measures include charging banks to park cash at the institution, loaning them more cheap money and a fresh push to revive lending.
Draghi’s declaration yesterday that officials are “comfortable” about taking further action if needed, and his increased irritation with a stronger euro, suggest he is giving up hope that an economic recovery will address the Japan-style deflation threat for him. It also pushes the bank closer toward the quantitative-easing policy that it has long rebuffed but may still have to deploy if his worst-case scenario plays out.
“The debate seems to be on what policy measures to take, and not on whether to take any at all,” said Elga Bartsch, chief European economist at Morgan Stanley in London.
Draghi’s exasperation with low inflation prompted economists from Morgan Stanley to ABN Amro Bank NV to predict policy makers will cut their key rate to 0.10 percent from 0.25 percent when they convene on June 5 and have access to new staff economic forecasts.
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German Exports Fall Most Since May 2013
Germany's exports in March declined at the fastest pace since last May, and imports fell for the first time this year, as the Ukraine crisis and the slowdown in China weighed on demand.
Defying expectations, exports fell 1.8 percent month-on-month in March, which was sharper than the 1.3 percent fall seen in February, data from Destatis revealed Friday.
This was the sharpest monthly decrease since May 2013 and came in contrast to a 1.3 percent rise forecast by economists.
At the same time, imports slid 0.9 percent on a monthly basis, the first fall in three months, reversing a 0.4 percent rise in February. Economists had forecast a 0.6 percent increase for March.
As a result, the trade surplus declined to a seasonally adjusted EUR 14.8 billion from EUR 15.8 billion in February. The unadjusted surplus, meanwhile, rose to EUR 16.4 billion from EUR 16.2 billion.
On a yearly basis, exports grew at a pace of 1.9 percent, after rising 4.6 percent in February. Imports advanced 5.6 percent in March, slower than the 6.5 percent increase posted in the prior month.
Exports to the EU countries increased 3.6 percent, and arrivals from those countries advanced 4.9 percent. Shipments to euro area gained only 0.1 percent, while imports surged 2.3 percent.
Exports to countries outside the EU fell 0.4 percent and imports from those nations grew sharply by 7.1 percent.
The current account balance of Germany showed a surplus of EUR 19.5 billion compared to a EUR 21.1 billion surplus seen last year.
With the ongoing geopolitical problems and the slowing emerging economies, it looks as if Germany's famous export engine could still be sputtering for a while, Carsten Brzeski, an economist at ING Bank NV said.
The Bundesbank said last month that economic growth will lose momentum in the second quarter after a strong start to the year. The first quarter GDP data is due on May 15.
The European Commission expects the biggest euro area economy to grow 1.8 percent this year and 2 percent in 2015.
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Again, another good analysis.
The ECB will issue monetary easing in June
It was hardly death and destruction from the ECB bazooka but Mario Draghi certainly threw his first grenade at yesterday’s press conference by announcing that the market can expect some monetary easing as soon as next month. This led to a marked sell off in the single currency however it was hardly the sort of sell off many had expected as the market has still been left very short on the detail, with the most likely action next month being nothing more than a rate cut. There is also the argument that further easing could actually strengthen the single currency as investors pile into euro denominated assets on the prospect of fresh liquidity boosting prices. The retracement back to 1.3825 where we stand this morning does not mean a test of the 1.4000 level is out of the question, so whilst a few longs might have been flushed out in yesterday’s frantic activity, new positions might be initiated expecting further upside.
This morning is likely to see sterling back in the spotlight as industrial and manufacturing production figures are released, both expected to decline month-on-month. Considering the spate of good data from the UK recently it wouldn’t come as too much of a surprise to see yet another figure release better than expected, which could see GBPUSD have another go at pushing towards the big figure 1.7000.
In the absence of other more major data releases, the focus will be back on the dollar which recently tested the lows that were last hit back in October 2013. The greenback has already bounced, so the big question is, have the fortunes for the dollar finally turned?
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Great Graphic: Euro Flirts with 10-month Uptrend
This Great Graphic, composed on Bloomberg shows that the euro is now testing a ten-month up trend that comes in near $1.3780 today. We suggested this target yesterday when we realized the euro was posting a key reversal.
A break of there, and there is scope for another cent retreat (~$1.3675) as the late longs move to the sidelines. The next immediate target, though may be the 100-day moving average near $1.3740.
We note that the 200-day average is near $1.3620. If the 10-month uptrend itself is going to be corrected, the 38.2% retracement comes in near $1.3520.
The key issue for traders is whether the uptrend has reversed or if this is a correction. It appears to be a correction at this juncture, even though the correction does not appear to be over.
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EUR/USD forecast for the week of May 12, 2014, Technical Analysis
The EUR/USD pair initially tried to rally to the 1.40 level, but as you can see turned everything back around and form a nasty looking resistive candle. The shape of the candle is somewhat like a shooting star, and as result it looks as if the market is ready to continue falling from here. The 1.37 level will be supportive, but we believe that the closing of the week at such lows in the range means that we will see continued bearish pressure, and as a result we aren’t looking to buy at all now.
Once Unbreakable, Euro Now Exposed to ECB’s Policy Missteps
Fundamental Forecast for Euro: Bearish
- The Euro entered the week on the verge of significant breakouts versus the Japanese Yen and US Dollar…
- …but ECB President Draghi’s promise of policy action in June weighed heavily on the single currency.
- Have a bullish (or bearish) bias on the Euro, but don’t know which pair to use? Use a Euro currency basket.
A serious flaw was exposed in the European Central Bank’s policy strategy this week, setting up the Euro for a potentially rough few weeks going forward. With ECB President Mario Draghi saying that the Governing Council felt “comfortable” enacting further dovish policies at the June meeting once the new staff economic projections were released, the market’s growing calls for new dovish action has been materially altered into a full-blown expectation of a substantive policy change in four weeks.
Market participants gleefully hoped on board the Euro bear train midway through President Draghi’s press conference on Thursday, taking the latest episode of jawboning a bit more seriously now that a veritable checkpoint down the road has been established for action that should undermine the Euro (the selling on Thursday and Friday is evidence of the market pricing in a small rate cut, with the number of basis points priced out of the Euro over the next 12-months moving from -4.3-bps on Wednesday to -11.4-bps on Friday).
Even though President Draghi indicated that the Euro exchange rate was not a policy tool, he did specifically say that it would be necessary to address if it undermined price stability. Incidentally, traders have taken this as a sign that persistently low inflation for the region is being blamed on the single currency (rather than the policies which got us to this point, of course) – and this is now the most daunting corner the ECB has painted itself into to date as it has essentially guaranteed some form of easing.
We can’t say that Euro weakness into the June meeting is guaranteed; but, in the sense that market participants needed a reason to offer the Euro lower, they’ve been granted one: the ECB wants a weaker currency, and it has promised a dovish policy response in return. And the market has responded, with the EURUSD dropping from a fresh yearly high of $1.3993 on Thursday to the close of 1.3760 on Friday.
Clearly the market is already responding, just like in late-October into early-November. The ECB proceeded to cut rates by 25-bps, and the Euro bottomed that day. The rate cut was baked in, with the EURUSD having fallen by over -3% in the preceding two weeks. The EURUSD retraced all of its loses over the next month and a half; inflation slipped back as the Euro rebounded. The ECB very much risks the same unfolding of events here, especially because the region continues to run large current account surpluses – there is a natural market inclination for the exchange rate to rise in response.
The market now has the ECB hostage. If there is no action, the ECB’s credibility will be torn to shreds and the Euro will shoot to the moon. But if it’s only a rate cut as a response, like what transpired in November, it is doubtful that the Euro will stay low for long either. Market participants will be hungry for more reasons to obey the ECB’s desire for a weaker currency despite certain financial (debt aspect of crisis has faded, sovereign yields at record lows) and trade (current account surpluses) fundamentals that dictate a stronger currency.
Now that the ECB’s main rate will be pinned near zero percent, the Euro may about to become a victim of the ECB’s policy missteps (President Draghi used to say the ECB never pre-commits; now totally discredited). It’s only a matter of time before market participants threaten to push the Euro higher unless the non-standard realm of policy is entered – negative rates and/or full blown QE
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Euro Suffers Greatest Dip In Weeks
The euro fell the most in the past seven weeks against the dollar, after the European Central Bank, or ECB, signaled that it would ease monetary policy in June.
The euro weakened 0.7 percent to $1.374 while the local currency also fell from almost a 2.5-year high of just below $1.40 as Mario Draghi, ECB president, said that policymakers would be “comfortable” with further taking steps to support the euro-zone economy. Such a signal has made rival currencies more attractive.
“The ECB must take action for this to be a more sustained move lower [for euro-dollar]," Ian Gordon, FX strategist at Bank of America Merrill Lynch said, according to the Wall Street Journal, and added: "Otherwise the market will keep testing the ECB's willingness and resolve to deal with the low inflationary pressure."
German exports also fell 1.8 percent in the month, while imports declined 0.9% from February, Federal Statistics Office data showed, according to the Journal. The British pound fell 0.5 percent against the dollar, to $1.684.
“This is the last time that Draghi can maintain credibility with verbal intervention, and so it’s really time for them to deliver,” Mark McCormick, a macro strategist at Credit Agricole, said, according to Bloomberg, and added: “What’s been interesting, at least in the dollar framework, is U.S. rates have decoupled from economic data.”
The U.S. Labor Department reported that 288,000 jobs were created in April, making it the biggest increase since January 2012, while unemployment dropped to 6.3 percent, the lowest level since September 2008, Bloomberg reported.
“I have some sympathy for the view that the Fed is making a mistake about how much slack there is in the labor market,” Steven Englander, managing director and global head of Group of 10 FX Strategy at Citigroup in New York, said, according to Bloomberg, and added: “But you have to admit that the Fed seems utterly convinced that that slack is there, so until you find something that that refutes their view, I don’t think investors are going to be fighting that fight.”
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EUR/USD Forecast May 12-16
EUR/USD had an exciting week, getting very close to 1.40 before crashing German ZEW Economic Sentiment, GDP data, Industrial production and final inflation figures are the major events on our calendar. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.
The ECB did not touch the interest rates and Draghi read out only known mantras in the written statement and EUR/USD got closer to 1.40. But then came the bomb: a move in June is something “the ECB is comfortable with”. This sent the euro plunging down. Was this yet another trick to push the value of euro down? Learning from the second move down to a one month low, we can say that at least for now, the markets take Draghi seriously. Can this move continue?
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