The latest batch of reports from the region haven’t been all that upbeat, and a couple more event risks are on the horizon this time. Here’s what you should look out for.
ECB Governor Draghi’s speech (Jan. 15, 3:00 pm GMT)
First up, we’ve got a testimony coming from the main man himself, ECB head Mario Draghi who is set to give a speech during the central bank’s Annual Report before the European Parliament in Strasbourg.
As it is, market participants have mixed views on when the ECB might start hiking interest rates, with some predicting that it is still possible later this year and others pushing expectations way ahead to 2020.
Now Draghi’s previous remarks have signaled that they’re not really eager to start tightening just yet, and all that was before medium-tier reports started revealing chinks in the euro zone’s armor. Still, any attempt to reassure that the region could stay on track with its recovery might still keep the shared currency afloat.
Low-tier economic data (starting Jan. 14, 7:00 am GMT)
Another batch of economic figures are due throughout the week for the euro zone’s top nations, and aggregate data are also on the docket.
To start, we’ve got the German wholesale price index and the region’s industrial production report in today’s London session. Both are expected to post slightly faster gains of 0.3% versus the earlier 0.2% upticks. Keep in mind that the latest batch of PMI readings have mostly disappointed, so there could be downside risks to business indicators.
Next up, Tuesday’s schedule has the French final CPI reading and government budget balance. The latter might garner more attention than usual, given how the Yellow Vest movement in France is gearing up for another round of protests.
Wednesday has the German final CPI reading, followed by the region’s final inflation figures up for release the following day. No major revisions are eyed, though, so these might not have much of an impact on euro direction.
While most of the pressure is on sterling leading up to the House of Commons vote this week (which may or may not be pushed further back… again!), there’s no denying that the euro is also affected by developments as well.
Assuming the vote pushes through as PM May insists, analysts predict strong odds that the Withdrawal Bill will suffer an overwhelming defeat anyway. This could leave the government with the options to either scramble to fix the transition deal for another vote or back out of Brexit altogether. Bandersnatch, anyone?
In any case, this keeps most of Europe in limbo, and the uncertainty could manifest in European markets and the shared currency’s price action. The euro may have flexed some of its safe-haven muscles in similar situations in the past but, with the not-so-rosy outlook for the euro zone this time, the franc might be in a better position to take advantage.
Last Week’s Price Review
It looks like the euro is in the middle of the pack in terms of price action performance, with most pairs closing under 1.00% from the previous week closes and the relatively choppy price action.
Major Market Drivers for the Euro
European economic data was aplenty this week, but it looks they mostly had little affect on euro pairs. Given the mixed performance of the euro against the majors this week, it’s highly likely price action was more affected by counter currency moves. However, there were two instances of uniform price action to highlight.
First was the broad rally higher on Wednesday, which was likely a reaction to a broad selloff in the Greenback sparked by several Fed members speaking that day. Fed members Charles Evans and James Bullard reiterated the Fed’s ability to be patient with rate hikes and the potential that further hikes could cause a recession. There could have also been buying support in reaction to the news that the European unemployment rate ticked lower to 7.9% from 8.0% (the lowest level in a decade) that was released earlier in the session.
Second, we saw a pretty uniform late week move to the downside in euro pairs, likely initially sparked by the ECB’s monetary policy meeting minutes, which showed that the ECB is likely to look at stimulus tools given the recent string of weakening European economic data.
From there, the pace of the moves between euro pairs varied as the Aussie and Kiwi accelerated their gains into the weekend (likely on positive housing data and retail sales data), and Sterling caught a late bid on Friday on a report that a delay to the official Brexit date looks increasingly likely.
Euro Headlines and Economic data
- Eurozone Investor Confidence Lowest Since December 2014: Sentix
- ECB rate hike now unlikely before mid-2020, money markets bet
- Eurozone unemployment a bright spot amid growing gloom
- EU Trade Chief Will Continue Talks With U.S.’s Lighthizer
- French industrial production falls in November
- ECB rate hike still possible this year, narrative unchanged – Nowotny
- ECB’s Makuch – Euro zone growth is clearly slowing
The Swiss Franc
It was a rough week for the “safe haven” currencies, and the Swiss franc was no exception as it easily lost out to the high-yielders and the euro.
Major Market Drivers for the Swiss Franc
The Swiss franc had a few low tier economic data from Switzerland to potentially spark volatility (which really had little to no affect on price action), but as usual price action mostly tracked the euro all week long.
The Swiss franc looked like it had the euro’s number to start the week, but by Wednesday its drop versus the Greenback outpaced the euro’s and eventually losing out to the shared currency at the end of the week.
There doesn’t seem to be a direct catalyst to attribute this move to, so it’s possible we could have seen a round of currency intervention by the Swiss National Bank. Or possibly did the SNB’s stock market loss have forex traders pushing the sell button on the franc?