The EUR and the GBP on the Offensive, while the USD Shifts to Defense

After what had been a pretty quiet week on the economic calendar, things are certainly more chaotic this week and we can expect markets to be getting ready for a choppy week that not only includes plenty of economic indicators to consider, but also central bank commentary.

As we saw last week, central bankers have continued to rule the roost in the current markets, with there being plenty of uncertainty over monetary policy, particularly in the UK and the U.S.

While the markets will have to wait for the heads of the BoE, BoJ and ECB to give their speeches this week, with Draghi kicking things off later today, macroeconomic data out of the Eurozone this morning will be the first area of focus for the markets, with Germany’s IFO Business Climate Index figures scheduled for release.

We will be looking for the EUR to make a move off the back of the numbers, though business confidence will need to see a sizeable improvement for the EUR to break free of its Draghi shackles.

The EUR was range bound through the Asian session, despite a build-up of negative sentiment towards the Dollar, with the markets eager to gauge whether there has been any pickup in Eurozone inflation to cause the ECB to change its position on monetary policy.

In contrast to the effects of depressed oil prices on sentiment towards U.S inflation and the FED’s outlook on rates for the reminder of the year, the ECB has taken a different tact through the first half of the year and focused on core inflation, eliminating the effects of oil prices. Draghi has certainly been vindicated for brushing aside the acceleration in headline inflation, attributed to a bounce in crude oil prices earlier in the year, which had led to headline inflation overshooting the ECB’s objective earlier in the year.

We have seen the markets continue to speculate over the ECB’s asset purchasing program, expectations of a tapering stemming not only from inflation figures from earlier in the year, but also improving economic growth, with 2^nd quarter GDP figures expected to see a boost, supported by solid private sector PMI numbers through the quarter, the upbeat sentiment towards 2^nd quarter growth providing the EUR with some upside going into the European session, with the EUR up 0.1% at $1.12053 against the Dollar.

There’s certainly justified caution ahead of central bank commentary, particularly when it comes to Carney, Draghi and Yellen, the trio having caught the markets napping on a number of occasions in recent years and with the EUR sitting back in its ranges based on the most recent ECB press conference, there could be a different signal on monetary policy at any time, a shift in outlook by Draghi expected to have more impact on the EUR than any data through the week, possibly with the exception of prelim June core inflation numbers scheduled for release on Friday.

While the EUR will be in the hands of the ECB president, economic data out of the U.S kicks off with May’s durable goods orders and with the upbeat sentiment towards the U.S economy and monetary policy beginning to wane, the numbers will need to be impressive for there to be a bounce in the Dollar, which is in for a testy week, with the Healthcare Bill vote and Yellen commentary, together with a busy economic calendar there for the markets to navigate through. As things stand, the Dollar Spot Index is down 0.01% at 97.256, though we don’t expect the gains to be sustainable, with upside for the Dollar likely to be limited ahead of Yellen’s commentary, as economic data out of the U.S leading into and since the June FOMC continues to disappoint.

Across the pond, the pound continues to bounce around, with cable up 0.29% at $1.27551 at the time of the report, the upside coming from hopes of positive progress in Brexit negotiations, following comments from chief negotiator Davis, though even the pound will be tested by Carney this week, with the BoE Governor perhaps wanting to put the record straight on monetary policy, following Haldane’s hawkish commentary last Wednesday.

It’s worth bearing in mind however, that even Carney has been known to flip-flop, but with Brexit negotiations in full flow and political uncertainty needing to also be factored in, an about turn would be an unusual move at this juncture, particularly with the hawkish Forbes being replaced by a more dovish Tenreyro.

UK mortgage approval numbers due out this morning could knock the pound of its current run, with the pound certainly sensitive to data and noise at present, but it’s going to come down to Brexit, any challenge on Theresa May’s leadership and of course, Carney…