Draghi Comments on Stimulus Boost EUR/USD

The EUR/USD traded higher on Thursday after European Central Bank President Mario Draghi said the ECB would continue its economic stimulus program until inflation picks up and companies and consumers gain confidence. Draghi also added that the $1.3 trillion quantitative easing program, “will stay in place as long as needed for its objectives to be fully achieved.”

The GBP/USD continued its strong surge, buoyed by last week’s surprise election results and yesterday’s somewhat upbeat comments from Bank of England Governor Mark Carney.

Today, the U.S. reported that producer inflation fell by 0.4% in April. Traders were looking for a reading of 0.1%. Core PPI declined 0.2% versus the estimate of 0.1%. This report, coupled with yesterday’s weaker-than-expected U.S. retail sales report helped underpin the Euro and British Pound by driving down the dollar. Losses were limited by a better-than-expected weekly unemployment claims report. This report showed that claims fell to 264K from last week’s reading of 272K.

The weak U.S. economic data helped weaken the U.S. Dollar, triggering an intraday surge by June Comex Gold futures. Gains were limited, however, by technical factors. Chart watchers came in to sell gold after it reached a major 50% price level at $1225.70.

Look for upside momentum to pick up as long as the U.S. Dollar continues to weaken. After several weeks of trading sideways, gold is now in a position to move sharply higher with its next objective $1245.40.

July Crude Oil futures traded lower on Thursday despite yesterday’s weekly Energy Information Administration’s supply/demand report which showed a decline in supply for the second consecutive week. Traders are still concerned about the size of the inventory which is at an 80-year high. Yesterday’s report showed that oil inventories fell 2.2 million barrels in the week ended May 8 to below 485 million barrels.

According to traders, crude oil inventories have to decline by at least 1.5 million barrels a day in order to put a dent in the inventory. This is not likely to occur because of the limited cuts in U.S. production and OPEC continuing to produce at record levels.