EUR on the Up with Draghi in Focus

There’s little on the economic calendar for the day ahead, with material macroeconomic data limited to U.S import and export price index figures for April, scheduled for release this afternoon.

A lack of material stats through the week has left the markets with a lack of direction and little to get its teeth into, the swings across the majors more akin to a pendulum than driven by fundamentals.

Things could change this afternoon however, with Draghi scheduled to speak in the Dutch Parliament. There’s plenty of uncertainty over whether the ECB will take a more hawkish outlook on monetary policy following the French election result. As things stand, the general sentiment is that the ECB will stand pat on monetary policy through the summer with the ECB expected to begin considering tapering towards the end of the year.

A centralist win on Sunday failed to push the EUR through to $1.10 levels, the EUR falling just short before its retreat this week, with ECB monetary policy and Draghi weighing heavily on the EUR, despite market sentiment towards the Eurozone economy and outlook for growth.

For the EUR to bounce, it’s going to need some big talk from Draghi and the team, this afternoon’s speech in the Netherlands being the first opportunity for the ECB President to give comments following Macron’s victory.

Draghi has always insisted that the EUR is here to stay, but there will more than likely have been discussions behind closed doors on how the central bank would deal with the return of the Franc and the likely impact on the EUR and Eurozone growth. Draghi’s poker face will likely reveal little, while any comments relating to monetary policy will reveal the hidden truth on whether the dovish sentiment was driven more by concerns of a possible Le Pen victory or underlying inflation sitting short of the ECB’s target.

Central banks are certainly not lining up to join the FED in looking to normalize monetary policy.

At the time of the report, the EUR is up 0.17% at $1.08923, though the gains could erode away quickly should Draghi refrain from discussing monetary policy, the sounds of silence on monetary policy likely to be taken as status quo by the markets.

In contrast, the Dollar is sitting in the red at the time of the report, with the Dollar Spot Index down 0.2% at 99.459, a lack of noise from the Oval office the negative for the Dollar, with stats for the week on the lighter side.

The markets will have to look ahead to Friday’s stats for any meaningful data, though with the probability of a June rate hike sitting at 90%, the move is largely priced in, the Dollar now in the hands of Trump policy and the FED’s intentions vis-à-vis the balance sheet and to what degree the FED is looking to sell down assets through the remainder of the year.

FOMC members have certainly talked up the need to begin selling down, but without clear guidance on when the markets can expect a move, the Dollar’s unlikely to reflect talk from non-voting members.

Current levels for the EUR are certainly attractive, but with Draghi scheduled to speak, anything is possible which will likely peg back the EUR going into the ECB President’s speech, which comes ahead of stats out of the U.S.

The Dollar could find some support, but the stats will need to be solid, with import and export price indexes providing some guidance on inflation, though the stats are not the FED’s preferred numbers and are unlikely to shift market sentiment towards the outlook on monetary policy, the FED sitting comfortably with its further 2 rate hikes projected for the year, Trump yet to deliver tax reforms and a fiscal stimulus package.