The euro had a bad run during the session, thanks to comments from ECB officials that warned about the euro’s recent strength. Meanwhile, the Aussie and the Kiwi got a lift, likely because of the returning risk-on vibes during the morning London session.
- Euro Zone final HICP y/y: 1.4% as expected vs. 1.5% originally
- Euro Zone final core HICP y/y: unchanged at 0.9% as expected
- BOC monetary policy decision and presser later; read Forex Gump’s trading guide
Anti-Euro comments from ECB officials
Two decision makers from the ECB were under the spotlight earlier, namely ECB Governing Council Member Ewald Nowotny and ECB Vice President Vitor Constancio.
Constancio was up first, and he had this to say in an interview with La Republica.
“Looking at fundamentals, inflation declined slightly in December. As it is known, we don’t target the exchange rate. But I am concerned about sudden movements which don’t reflect changes in fundamentals.”
Aside from talking down the euro, Constancio also heavily implied that the ECB won’t be changing its stance on monetary policy next week when he quipped that (emphasis mine):
“We see the need for a gradual adjustment of all the elements of our forward guidance if the economy continues to grow and inflation continues to move towards our goal. This does not mean that changes will be immediate.”
“We are not changing the path of our monetary policy. With the decision to halve our monthly bond purchases we have adapted our monetary policy to the new economic context and consequently to the higher inflation ahead. But this does not mean that monetary policy will not remain very accommodative for a long time. We see no inflation risks. We should not choke off growth too soon.“
As for Nowotny, he said the the euro’s recent appreciation against the U.S. dollar needs to be observed since a stronger euro is “not helpful” to the Euro Zone economy.
These anti-Euro comments from Constanctio and Nowotny are also quite similar to what Francois Villeroy de Galhau, another ECB Governing Council Member, is quoted to have said in an interview yesterday.
Fading aversion to risk in Europe
Many of the major European equity indices opened lower and then plumbed new intraday days low shortly after the morning London session rolled around, which is a sign of risk aversion.
However, risk sentiment clearly began to improve later since the major European equity indices clawed their way higher and most were already slightly in the green by the end of the session.
Market analysts blamed the aversion to risk earlier on sentiment spillover from the earlier sessions, as well as poor earnings reports and the slide in commodity prices.
As for the signs of recovering appetite for risk, market analyst say that was due to the weaker euro boosting demand for European exporters and higher demand for banking shares amid expectations that the major central banks will be tightening policy soon.
- The pan-European FTSEurofirst 300 was up by 0.08% to 1,567.07 after reaching a low of 1,560.60 earlier
- Germany’s DAX was still down by 0.10% to 13,232.50 but off the day’s low at 13,186.00
- The blue-chip Euro Stoxx 50 was up by 0.05% to 3,619.50 after reaching a low of 3,605.50 earlier
The major European equity indices were only slightly in the green, but the prevalence of risk-taking was clearer in the U.S. equity futures market.
- S&P 500 futures were up by 0.33% to 2,791.75
- Nasdaq futures were up by 0.34% to 6,785.25
Major Market Mover(s):
The euro had a promising start during the Asian session, but that turned into a disappointing broad-based retreat during today’s morning London session.
And looking at price action, the euro’s performance was already becoming a bit mixed during the late Asian session. However, euro pairs started to take hits across the board when ECB Mini Boss Constancio talked down the euro while heavily implying no change in policy next week.
Constanctio was therefore apparently the main culprit for the euro’s slide. Although additional selling pressure was noticeable when Nowotny also talked smack about the euro’s strength.
EUR/GBP was down by 19 pips (-0.21%) to 0.8860, EUR/AUD was down by 59 pips (-0.33%) to 1.5320, EUR/NZD was down by 80 pips (-0.47%) to 1.6801
The euro was actually only the second worst-performing currency of the session. The (dis)honor of being the biggest loser of the session goes to the Swissy, very likely because the Swissy was tracking the euro lower while also taking additional hits because of improving appetite for risk in Europe.
USD/CHF was up by 16 pips (+0.18%) to 0.9645, AUD/CHF was up by 32 pips (+0.43%) to 0.7686, NZD/CHF was up by 36 pips (+0.53%) to 0.7008
AUD & NZD
The returning risk-on vibes may have been bad for the safe-haven Swissy, but they likely gave the higher-yielding Aussie and Kiwi a boost since the commodities were mixed during the session.
Speaking of commodities, gold slipped by 0.04% to $1,336.60 per troy ounce during the session, which is likely why the Kiwi was able to gain the advantage against the Aussie and emerge as the top performer of the morning London session. Although it’s also possible that traders were wary of positioning too heavily on the Aussie ahead of Australia’s jobs report tomorrow.
AUD/USD was up by 21 pips (+0.26%) to 0.7969, AUD/JPY was up by 22 pips (+0.25%) to 88.26, AUD/CAD was up by 18 pips (+0.18%) to 0.9917
NZD/USD was up by 28 pips (+0.38%) to 0.7267, NZD/JPY was up by 29 pips (+0.37%) to 80.48, NZD/CAD was up by 27 pips (+0.30%) to 0.9043
Watch Out For:
- 2:15 pm GMT: U.S. industrial production (0.5% expected, 0.2% previous) and capacity utilization rate (77.4% expected, 77.1% previous)
- 3:00 pm GMT: BOC statement (rate hike from 1.00% to 1.25% expected); read Forex Gump’s trading guide
- 3:00 pm GMT: NAHB U.S. builders survey (72.0 expected, 74.0 previous)
- 4:15 pm GMT: BOC presser
- 7:00 pm GMT: U.S. Fed’s “Beige Book” will be released
- 9:30 pm GMT: Cleveland Fed President Loretta Mester will speak