Draghi, the ECB and the EUR in Focus After Juncker Delivers

With the Dollar recovering from early losses, is the EUR in for a surprise later today, with Draghi tending to favor jawboning the EUR?
Bob Mason
Draghiecb sign

Earlier in the Day:

There were no material stats released through the Asian session this morning to provide direction for the markets, with the news from the U.S of the EU and U.S coming to an agreement on trade having little to no impact on the equity markets through the early part of the session, while there was some movement in the FX world.

For the Japanese Yen, momentum continues to be with the Yen, which was up 0.16% to ¥110.80 against the Dollar, the expectation of a shift in policy at next week’s BoJ monetary policy meeting providing the direction through the week, though the gains are far from spectacular, with the Japanese Yen still sitting well off current year highs of ¥104 hit back in late March.

For the Aussie Dollar and Kiwi Dollar, the talk of a China stimulus package and the positive outcome to trade talks between the EU and the U.S provided strong support for commodities through the U.S session, though much will hinge on whether China and the U.S can look to achieve a similar level of success as with the EU and the U.S, China likely to be less accommodating to the demands of the U.S President.

At the time of writing, the Aussie Dollar was down 0.21% to $0.7439, following Wednesday’s 0.42% gain, while the Kiwi Dollar was up just 0.01% to $0.6838, off the back of Wednesday’s 0.51% rise.

In the equity markets, the stronger Yen weighed on the Nikkei, which was down 0.18% in a choppy session, the ASX200 recovering from heavier losses, down 0.04%, while the Hang Seng and CSI300 saw red, the CSI300 pulling  back following gains from earlier in the week, down 0.87%, with the Hang Seng following, down 0.63% at the time of writing.

The Day Ahead:

For the EUR, economic data scheduled for release through the morning includes consumer confidence figures out of France, Italy and more importantly Germany, with Germany’s August GfK Consumer Climate figure likely to be the key driver through the morning, while the markets also respond to the outcome of the EU – U.S meeting on Tuesday and the aversion of an all-out trade war.

While we can expect some support for the EUR and direction from the consumer confidence numbers, the ECB monetary policy decision and all-important press conference later in the day will be the key drivers, the outcome of Juncker’s meeting with Trump certainly putting a different spin on today’s press conference.

Whether Draghi will discuss a possible shift in policy towards deposit and interest rates remains to be seen, having pushed any moves back to the 3rd quarter of next year, though with inflation continuing to sit well below target sentiment towards the economic outlook may be the area of focus.

At the time of writing, the EUR was up 0.03% to $1.1732, with today’s stats and the ECB press conference likely to overshadow any noise from the Oval Office.

For the Pound, there are no material stats scheduled for release, with the Pound having found some support from Theresa May’s plans to lead Brexit negotiations and sentiment towards BoE monetary policy, but with Juncker and Trump now appearing to be aligned on trade, there may well be less reason for the EU to look towards Britain as a trade ally.

At the time of writing, the Pound was up 0.11% to $1.3203, with little to provide direction through the day other than noise from Brussels, the markets now having to play a wait-and-see on whether Theresa May can turn the corner in negotiations on Brexit, while the prospects of a 2nd August rate hike continue to support the Pound, a more than 80% probability of a rate hike coming in spite of some weak stats out of the UK in recent weeks and the continued uncertainty over Brexit and Theresa May’s precarious position as Prime Minister.

Across the Pond, stats out of the U.S include the weekly jobless claims figures together with June durable goods orders, which will be the key driver for the Dollar.

Anything in line with or better than forecasted will be Dollar positive, with the headline stat being the month-on-month durable goods orders figure.

Outside of the stats, Trump may now return his attention to trade tariffs and China, with Iran also there to consider, recent rhetoric seeing tensions build in the Middle East.

At the time of writing, the Dollar Spot Index was down 0.08% to 94.158, with today’s stats and the Oval Office the key drivers through the day.

For the Loonie, the particularly quiet week is coming to an end, with no stats scheduled for release through the day to provide direction

At the time of writing, the Loonie up 0.06% to C$1.3038 against the U.S Dollar, with hopes of a renewed focus on and positive outcome on NAFTA alongside a hawkish BoC providing direction, though trade war jitters will continue to pin back a full on Loonie rally.

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