The euro whipped back and forth during the ECB presser as Draghi shared more insights on policy and exchange rates while the dollar drew some support from Trump’s remarks.
SNB head Jordan stepped up his jawboning game when he warned that the central bank is ready to intervene in the currency markets if necessary, but that barely stopped franc bulls from charging.
- U.S. initial jobless claims up from 216K to 233K vs. 239K forecast
- U.S. new home sales fell from 689K to 625K vs. 679K consensus
- U.S. CB leading index improved from 0.4% to 0.6%
- Canadian headline retail sales up 0.2% vs. 0.7% consensus
- Canadian core retail sales up 1.6% vs. 0.8% consensus
- ECB head Draghi: Discussion on tapering guidance hasn’t started
- Draghi: Some concerns about possible change in U.S. policy
- Draghi: ECB does not target exchange rates
- Trump: Wants to see a stronger USD, Mnuchin remarks taken out of context
- SNB head Jordan: Central bank doesn’t look at FX rates when deciding policy
- Jordan: Not looking at currency war but ready to intervene if necessary
ECB press conference
Price action was relatively subdued during the actual ECB statement, but that turned out to be the calm before the storm as the excitement picked up during the presser.
To start off, Draghi reiterated that their commitment to their inflation target is firmer than ever and that it’s too early to declare a victory. He went on to say that not much has changed since October and that monetary policy will remain accommodative.
As the Q&A session rolled along, Draghi appeared to shift to a more optimistic tune in saying that ECB officials expect underlying inflation to rise over the medium-term as the economy expands, slack is absorbed, and wages increase.
He also mentioned that risks to growth remain roughly balanced, citing strong cyclical momentum potentially spurring positive growth surprises and downside risks related to global factors.
In particular, he mentioned that there are some concerns about a change in U.S. policy. Perhaps taking a dig at recent currency-related remarks from U.S. officials?
When it comes to euro strength, Draghi explained that the central bank does not target exchange rates but also added that it could pose risks.
“Against this background the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability.”
Nonetheless, he acknowledged that recent data suggests “a robust pace of economic expansion, which accelerated more than expected in the second half of 2017.”
Trump talks dollar strength
Contrary to his comments back in April last year on the dollar being too strong, the Donald shifted gears and said that the currency is “going to get stronger and stronger, and ultimately I want to see a strong dollar.”
Trump also said that Treasury Secretary Mnuchin’s remarks on how a weak dollar could be beneficial for trade were taken out of context. In an interview in Davos, he added that the U.S. is becoming strong economically and in other ways, too.
Mixed Canadian retail sales data
Canada reported a meager 0.2% uptick in headline retail sales for November but made up for the miss with an impressive 1.6% gain in core retail sales, twice as much as the earlier 0.8% increase.
Components of the report revealed that lower purchases at new car dealers dragged the headline figure lower while higher sales at gasoline stations, electronics and appliance stores, and general merchandise kept the core figure afloat.
In particular, Black Friday sales buoyed electronics and appliances purchases 12.5% higher while the 7.4% increase in gasoline prices also accounted for most of the gains. In volume terms, spending was up 0.3% for the month.
Major Market Mover(s):
Euro pairs enjoyed a stronger bout of volatility during the ECB presser as bulls and bears were quick to react to Draghi’s remarks.
EUR/USD skyrocketed to a high of 1.2538 before quickly slipping to a low of 1.2363, EUR/JPY rallied to a high of 136.14 then retreated to a low of 135.41, EUR/GBP found support around .8700 then climbed to .8773, and EUR/NZD advanced to a high of 1.7017.
The dollar tried to pare its losses from consecutive losing days when Trump assured that the currency would get stronger.
GBP/USD slipped from 1.4345 to a low of 1.4083, USD/JPY bounced off the 108.75 support zone to a high of 109.77, USD/CHF is up to a high of .9451, and NZD/USD fell through a low of .7291.
SNB head Jordan’s intervention threats weren’t enough to stop the franc from rallying as euro weakness came into play and several market watchers still seemed wary of the dollar.
EUR/CHF tossed and turned but fell to a low of 1.1612, CAD/CHF is down to a low of .7548, AUD/CHF is testing the .7550 minor psychological level, and CHF/JPY is up to 116.60.
Watch Out For:
- 11:30 pm GMT: Japanese core CPI (another 0.9% gain expected)
- 11:30 pm GMT: Tokyo core CPI (another 0.8% increase expected)
- 11:50 pm GMT: BOJ monetary policy meeting minutes (Read about their latest decision here)