Draghi wanting a much weaker EUR and Yellen a stronger USD

EUR/USD

In the early stages of European trade the pair staged a modest bounceback from yesterday’s heavy Draghi- inspired losses, with the USD seen broadly weaker alongside its major counterparts after the USD index failed to break above yesterday’s session highs. This move higher in the pair subsequently saw EUR/USD break back above 1.3200; a level which it hovered around for large portions of the session. With a lack of pertinent new fundamental newsflow or tier 1 data from the Eurozone, the pair was largely dictated by movements in the USD index, despite talk doing the round that an informal agreement was reached at Jackson Hole with Draghi wanting to see a much weaker EUR and Yellen a stronger USD, acting as a de facto tightening and thus potentially limiting the upside to US rate hikes. In terms of US data, the US durable goods orders release painted a relatively mixed picture as despite the headline coming in at 22.6% vs. Exp. 8.0% and showing upward revisions to the previous, the ex-transportation number (without Boeing) actually fell short of expectations and thus failed to present the pair with a sustained reaction. Looking ahead, attention for the Eurozone remains firmly placed on any further rhetoric from the ECB following the widely analysed comments from President Draghi last Friday.

NZD/USD

Overnight, NZD/USD was seen lower throughout the Asia-Pacific session following a particularly underwhelming New Zealand trade balance release with the headline figure revealing its first deficit since October 2013. The release subsequently saw the pair reach its lowest level in 6 months, shrugging off news that S&P affirmed New Zealand at AA with outlook stable. In terms of the report, S&P highlighted that widening NZ current account deficits are expected over coming years. Despite broad-based USD index weakness bringing the pair off its lows, the earlier disappointing data cemented the pair’s position in negative territory. Looking ahead, the next release from New Zealand comes after market in the form of food price data.

USD/JPY

The overnight USD weakness filtered through to the pair as USD/JPY tripped light stops through 104.00 to break below the key psychological level. Furthermore, analysts at IFR noted that month end flows favoured selling USD and thus dominated the price action. With a lack of market moving newsflow or tier 1 data releases for Japan, the price action for the pair was largely dictated by movements in USTs with the move higher in US fixed income products exacerbating the move to the downside as USD/JPY was sent lower by unfavourable interest differential flows. Additionally, the pair also failed to react to comments from the Japanese government that they maintain their overall economic view saying it is in a moderate recovery trend with the impact of sales-tax hike easing. However, the pair stage a late recovery following the better than expected US consumer confidence release. Looking ahead, attention now turns towards to any potential geopolticial developments with talks between Russian President Putin and Ukraine President Poroshenko still ongoing as both parties look to de-escalate tensions between the two nations.