Upbeat ECB minutes drove the euro higher against most of its peers in the previous week, and this might be enough to sustain the climb even with hardly any additional catalysts lined up.
Final CPI readings (Jan. 17, 10:00 am GMT)
Since the central bank’s mandate is to maintain price stability and the ECB is widely expected to start hiking at some point, traders will likely keep close tabs on these inflation reports.
Keep in mind, however, that the flash estimates have already been released a few days back. This means that these revised readings might not generate a big euro reaction unless there are major upgrades or downgrades.
The headline reading is expected to be revised lower from the 1.5% estimate to just 1.4% while the core figure could stay unchanged at 0.9%.
Last Week’s Price Review
The euro was a net loser for most of the week. However, the euro later got a double boost and is now currently on course to finishing as the third best-performing currency of the week after the yen and the Kiwi (as of 2:00 pm GMT).
The euro started the trading week by showing weakness pretty much across the board. There weren’t really any catalysts, but some market analysts said that the euro’s slide was just due to profit-taking.
Moving on, the euro’s price action became a mixed mess after that. There were even instances of diverging price action on some pairs.
However, the euro later caught a bid when the December ECB minutes turned out to be unexpectedly hawkish.
As for specifics, the minutes revealed that:
“[T]he view was widely shared among members that the Governing Council’s communication would need to evolve gradually, without a change in sequencing, if the economy continued to expand and inflation converged further towards the Governing Council’s aim.”
“The language pertaining to various dimensions of the monetary policy stance and forward guidance could be revisited early in the coming year.”
In short, the minutes opened the door to a possible change in policy stance and forward guidance early this year. And remember, Draghi has been heavily implying that no changes are forthcoming until late into the year, so this revelation is a bit unexpected.
Anyhow, the hawkish message of the ECB minutes continued to push the euro higher on most pairs after that until another bullish catalyst arrived, namely the news that German Chancellor Merkel and SPD Leader Martin Schulz have struck a deal to move forward to formal coalition negotiations.
To be more accurate, the official announcement didn’t really trigger an explosive reaction on the euro. Rather, the euro made its move when rumors about the progress in coalition talks began to make the rounds a couple of hours before the official announcement. I suppose a “buy the rumor, sell the news” scenario played out, except that there wasn’t really much selling going on when the official announcement was made.
The Swiss Franc
The euro did well, but the Swissy had a more mixed performance. But as you can see in the sample pairs below, the euro and the Swissy still had very similar price action.
However, the euro got a bigger boost when the ECB minutes were released on Thursday, so much so that the euro overtook the Swissy. Moreover, the euro also got a bigger boost when those rumors about the progress in German coalition talks began to make the rounds. And this allowed the euro to widen its lead against the Swissy.