EUR/GBP remains below 0.7222 after ECB meeting

EUR/USD little changed on ECB press conference

EUR/USD trading showed two faces. In the morning session, the pair was under pressure as a dovish press conference of Mr. Draghi was expected. An intraday low of 1.0570 was set around noon. However, while Mr. Draghi was dovish he kept his cards close to his chest on some market-important issues and didn’t add much to what he had said beforehand. Market-interesting questions were mostly avoided (see our flash report for more details) aside of a firm “No” to an eventual future deposit rate cut. So, some FX investors were disappointed. Combined with a weaker than expected NY manufacturing and US production data, the dollar came under downward pressure in volatile trading. At the end of the session, EUR/USD was close to opening levels: 1.0684 from 1.0655. Technically, EUR/USD stayed in the 1.0712 to 1.0462 sideways range. The weaker US data may start impacting the dollar more and make the upside more difficult.

Overnight initial dollar weakness largely reversed

Overnight, Asian equities trade stronger with China outperforming (up to 2% higher) on hopes that the government will take stimulus measures to shore up the economy. The Shanghai index reached a 7-year high. US equities had a good run too yesterday, helped by the energy sector. The Aussie dollar gains on strong labour market data. S&P cut the Greek rating to CCC+ (outlook negative) with German FM Schaeuble very critical on chances of a deal at next week’s Eurogroup meeting. In Asian trade EUR/USD successfully went above 1.07, for even a temporary high of 1.0750, but the dollar strengthened again across the board, even in the face of a strong Australian job report. EUR/USD currently trades again near 1.0684.

More US eco data on the agenda

The US eco calendar remains interesting. After having weakened sharply since the end of last year it will be interesting to see whether there are finally signs of improvement in the Philadelphia Fed index in April. We see risks for a bigger improvement. Better weather conditions are also expected to boost housing starts in March as weather conditions improved during the month.

Nevertheless, we believe that the risks are for a more limited rebound than consensus expects. in March, Finally, US initial jobless claims are forecast little changed at low levels (280 000 vs 281 000 in the week before). The risks are for an upward surprise in the week after Easter, but seasonal factors often cause distortions around the timing of Easter.

Today’s tactics.

The dollar’s fate will again depend on the US data (mixed expected). The Beige Book was better than the hard figures, still consistent with moderate growth.
With the ECB meeting out of the way, markets may be more sensitive to (weaker) US eco data. The 1.0712 first resistance is not broken, but we are becoming more cautious on the dollar short term. We confirm our long term and short term bullish outlook for the dollar (against euro). EUR/USD may go for a test lower (1.0463 and 1.0371), but given the outspoken short position of the euro we still prefer a sell-on-upticks of EUR/USD, preferable near 1.1098.

EUR/GBP remains below 0.7222 after ECB meeting

The EUR/GBP fate remains linked to that of EUR/USD. So intra-day moves occurred nearly identical. EUR/GBP ended the session as a consequence also similarly. EUR/GBP closed at 0.7198, fractionally below the previous close (0.7208).

Regarding trading, the UK and EMU calendars are nearly empty. Earlier this morning, RICS House prices were much stronger than expected, but largely ignored. As in EUR/USD, there was a strange spike higher in EUR/GBP to 0.7216 overnight, but it was as in EUR/USD easily reversed. For today, we expect EUR/GBP again to mirror EUR/USD closely. EUR/GBP is still near (but below) the key 0.7222 previous support, but the break never triggered more follow through euro selling. With some doubts on the dollar short term too, there might be an attempt to push EUR/GBP back above previous support, which would bring the pair in in upper part of the 0.70 to 0.74 broad range.

The G-20 meeting with multiple central bankers speaking is the wild card, as well as development regarding Greece.