EUR/USD slightly lower on ECB QE speculation and OPEC

Yesterday, European (currency) markets had to run their own course as US markets were closed for Thanksgiving. ECB QE speculation continued unabatedly. European investors adapt positions further to prepare for ECB government bond buying. EUR/USD slipped back below 1.25. Later in the session, the dollar was additionally supported by the sharp decline in the oil price following the OPEC decision. Commodity currencies suffered across the board.

Overnight, Asian equities trade mostly in positive territory. Japanese inflation was slightly softer than expected and so were retail sales. This data support the case for monetary stimulus. Japanese labour market data were better than expected, but this is not the focus of markets. The decline in the oil price is supportive for Asian/Japanese equities, too. Finally the dollar also profits from the sell-off in oil and other commodities. The likes of the Aussie, Canadian dollar and, to a less extend also the kiwi dollar are losing ground. In Europe, the Norwegian crown is hit hard. In the broader oil inspired dollar rally, USD/JPY returned north of 118. EUR/USD is also a few ticks lower compared to yesterday evening. The pair is trading in the 1.2450 area.

Today, US markets reopen after Thanksgiving, but most trading desks will be thinly staffed (Black Friday). In Europe, the EMU unemployment rate is expected unchanged at 11.5%. However, on (currency) markets will be focus on the EMU CPI. The headline CPI is expected to return to the post-crisis low of 0.3%Y/Y. The core is expected stable at 0.7%. A below consensus figure for the headline CPI is not completely excluded. Over the previous day’s, ECB QE anticipation was omnipresent. It was mostly visible in the European and US equity markets.
Yesterday, lower national inflation data caused also limited pressure on the euro. However, EUR/USD remains firmly within the established consolidation range. Aside from the ECB QE trade, the sharp decline of the oil price is becoming a factor for global (currency) trading too as it supports the dollar across the board. It is impossible to say how long this free fall in oil prices will continue. The issue deserves monitoring, but for now we are a bit cautious to see it as a lasting factor of importance for trading in the non-commodity currencies. Speeches from ECB’s Costa and, even more from ECB’s Weidmann remain a wildcard for EUR/USD trading.

In a day-today perspective, we expect EUR/USD to stay in well-known 1.24/1.25 territory. For now, the different policy stands between the ECB and the Fed has only a limited impact on EUR/USD. The global flood of liquidity is keeping USD yields under downward pressure, too. So, the dollar doesn’t receive any additional interest rate support against the euro. USD/JPY entered a ST consolidation phase as it digests the impressive November rally. This week and at the end of last week, any short-term dips soon attracted new buying interest. We have a positive USD/JPY bias longer term, but we didn’t feel inclined to add long exposure at the current levels. We wouldn’t be surprised if the next correction has some further to go before bottom fishers step in again.

Broader view. For EUR/USD further consolidation within the EUR/USD 1.2358/1.2600 range might be on the cards. Over the previous days we already indicated that a swift break lower in EUR/USD wouldn’t be that easy, even in case the data point in that direction. This assessment is still valid even as EUR/USD lost ground due to an oil-price driven rebound of the dollar. Next week’s early month US eco data might decide whether there is room for a new USD upleg going into the end of the year.

Oil price decline a slightly negative for sterling

Yesterday, there were no eco data in the UK. EUR/GBP initially hovered in a tight range roughly between 0.7905/30. The pair dipped to low area of this range as the first regional German inflation data came out on the softer side of expectations. However, contrary to EUR/USD, EUR/GBP soon reversed most of the losses. The decline in the oil price probably was a slightly negative for sterling against the euro, too. However for now the impact of oil on GBP trading remains limited. The soft intraday tone towards the UK currency and oil-driven USD strength was also visible in cable as the pair dropped from 1.58 + levels to the low 1.57 area.

This morning, GfK consumer confidence was marginally weaker than expected at -2. Nationwide house prices were almost perfectly in line with expectations at 0.3% M/M and 8.5% M/M. Today, the UK eco calendar is empty. Cable remains in the defensive this morning. EUR/GBP is trading little changed in the 0.7925 area. The end of month context is usually a positive for EUR/GBP. We don’t expect any clear directional move today, but sterling might be slightly in the defensive.