The ECB minutes didn’t do much to push the shared currency in a clear direction, so traders might turn to this week’s batch of catalysts. What’s in store for the euro and franc?
ECB head Draghi’s speech (Feb. 26, 2:00 pm GMT)
It looks like the euro could be off to an exciting start this week as ECB head honcho Draghi has a testimony lined up today.
You see, euro bulls weren’t able to sustain their charge after the minutes of the latest ECB meeting were printed as many still weren’t convinced that the central bank is turning more hawkish. Besides, the transcript indicated that several policymakers wanted to stay cautious about their inflation outlook.
The main reason for this is that the shared currency has been steadily climbing and this appreciation could keep a lid on domestic inflation. With that, traders are likely to keep their eyes and ears peeled for any jawboning remarks from the ECB Governor himself.
Flash CPI readings (starting Feb. 27)
Throughout the week, market watchers will get a better glimpse on whether or not euro appreciation has started to hurt price levels. The region’s flash CPI estimates are due on Feb. 28 and analysts are expecting to see a dip in the headline figure from 1.3% to 1.2%.
Prior to this, we’ll get some inflation clues from the region’s top economies. Germany will release its preliminary CPI on Feb. 27 and might show a 0.5% rebound after the earlier 0.7% slide while Spain could report a faster 0.9% increase in price levels compared to the earlier 0.6% uptick.
France will print its preliminary CPI reading a couple of hours before number crunchers tally the figures for the entire region. The French preliminary CPI is slated to show a 0.3% rebound from the earlier 0.1% dip.
Last Week’s Price Review
Most market analysts only focus on EUR/USD, so they trumpet about how weak the euro was this past week. However, if we look at the euro within the context of a basket of currencies, we can see that the euro actually had a mixed performance this week (as of 2 pm GMT).
And looking at the overlay of EUR pairs, we can also see that the euro’s price action was a chaotic mess, with lots of diverging price action to boot, which is a sign that the euro was vulnerable to opposing currency price action.
But why was the euro mixed for the week? Well, there’s no clear reason for that, to be honest. And commentary on the euro’s mixed performance is rather hard to come by since, again, most (practically all) market analysts only focus on EUR/USD’s price action.
However, the likely reason is that traders are wary of positioning too heavily on the euro because of the upcoming political events next, namely the Italian elections next week and the SPD members vote on the coalition deal, which started this week, with results expected by next Sunday (March 4).
By the way, the ECB’s meeting minutes were released on Thursday, and as noted in Thursday’s London session recap, that caused the the euro to jump higher as a knee-jerk reaction before quickly reversing course and taking a dive.
The minutes didn’t really reveal anything new, which is likely why the initial reaction was to jump higher. However, the minutes did reiterate the ECB’s cautious stance on monetary policy and concerns over the euro’s relative strength, “which represented a source of uncertainty that had to be monitored with respect to its implications for the medium-term outlook for price stability,” according to the minutes. And that may have enticed the bears to jump in.
However, the minutes did reinforce the idea that the ECB’s next move is to tighten or to at least sound hawkish when it noted that (emphasis mine):
“The language pertaining to the monetary policy stance could be revisited early this year as part of the regular reassessment at the forthcoming monetary policy meetings. In this context, some members expressed a preference for dropping the easing bias regarding the APP from the Governing Council’s communication as a tangible reflection of reinforced confidence in a sustained adjustment of the path of inflation.”
And that’s likely why follow-through selling was only limited and the euro bounced back up on most pairs.
The euro’s price action after that was a mixed mess, though.
The Swiss Franc
Like its partner in crime, the Swissy also had a mixed performance this week and price action on the Swissy was a chaotic mess as well, with diverging price action to boot.
And if you guessed that the the euro and Swissy are still dancing in tandem, then you’re right on the money on that one, as can be seen in the sample pairs below.