The ECB: We have seen the peak for EURUSD.
As described yesterday, it would be negative for EUR if Mario Draghi chose to comment on the recent appreciation of EUR. He chose to do so – and EUR weakened as expected. Draghi said that a higher EUR rate would entail the risk of downward pressure on inflation.
Moreover, Draghi voiced a fairly negative view of the economy, which is still showing signs of weakness. On the other hand, he had a positive view of the LTRO repayments, which he considers an indication of strength on the part of the banks.
Our assessment is that Draghi’s comments are very decisive in respect of any further potential offered by EUR. Hence we assess that the comments will have the effect that 137.11 will be the peak this time around, and that the trend now points downwards.
Through his comments, Draghi (indirectly) signalled that EUR is being watched by the ECB. Also, earlier in the week, an anonymous source stated that the ECB is very dissatisfied with the policy of the Bank of Japan, and the ECB wants to have this discussed at the G20 summit on 15-16 February.
- BoE: Bank of England did not surprise, but Carney did.
As expected, the outcome of yesterday’s interest-rate meeting at the Bank of England was an announcement that the monetary policy is unchanged. We have to wait for two weeks until we see the minutes and gain insight into the thoughts of the central bank.
Incidentally, it is worth pointing out that the coming central bank governor, Mark Carney, at a parliamentary hearing, did not mention that the BoE should have a temporary growth target contrary to the current inflation target. Instead he talked about a flexible inflation target. It could very much be argued that already now the BoE has a flexible inflation target.
At no point in time since the financial crisis, has the inflation rate been close to the target of 2.0% (can to some extent be attributed to VAT increases).
We assess that GBP has been the scapegoat since early January. The economic indicators were weak and investors were concerned about Carney’s comments about a new growth target. Yesterday’s comments should offer good support for GBP. We assess that we have seen the peak for EURGBP this year.
Today’s events: Nothing important – the market will trade in the wake of the ECB
09.30 SEK: Industrial production (forecast +0.2%)
10:00 NOK: Industrial production (forecast +0.3%) N/A EUR: The EU summit ends today. The EU budget is on the agenda.
EURUSD (SELL): Sell EURUSD with take-profit at 132.00 and stop-profit adjusted to 135.52.
We expect that this correction phase will bring EURUSD down to the level of 132-133.30.
As stated under ‘Review’, we think yesterday’s ECB press conference was of extreme importance. The market's had been convinced that irrespective of the currency development the ECB would not take action – but this view was proven wrong.
Furthermore, two Fed members made fairly hawkish statements. The ultra-dovish FOMC member Evans assessed that QE3 has to be rolled back when the unemployment rate is at about 7.0%. Stein, another FOMC member, assessed that certain parts of the financial market are taking excessive risks. Both statements are important signals that we should not expect QE3 to last much longer than late 2013.
Resistance and support:
Downside: 132.70. Then 131.60.
Upside: 136 and 137.30. Then 138.33.
GBPSEK (BUY): Adjust take-profit to 10.44. Adjust stop-loss to stop-profit at 9.90.
Carney’s speech to the parliament yesterday clearly supported GBP. Not because the speech changes anything in respect of the current monetary policy, but because the speech signals that there is no new monetary policy in the offing.
We expect that GBP will strengthen in the wake of yesterday’s speech. Also against EUR.
GBPSEK
Resistance and support:
Downside: 9.9270. Then 9.8760.
Upside: 10.24-10.28. Then 10.46 and 10.75.
EURGBP (NEUTRAL): Investors who do not buy GBPSEK should sell EURGBP when it breaks 84.95.
Resistance and support:
Downside: 132.70. Then 131.60.
Upside: 136 and 137.30. Then 138.33.
EURPLN (SELL): We recommend that investors SELL EURPLN with stop-loss at 422.20.
On Wednesday the central bank lowered its interest by 25 basis points to 3.75%. The change had been anticipated.
The money market expects a pause in the current cycle of interest-rate cuts. We expect that the range of 420- 22 will hold firm over the coming weeks, and that not until we have again seen the range of 410-12 will EURPLN begin to break up through the old trading range.
EURJPY (NEUTRAL): The big winner may be the big loser.
Recently JPY has weakened drastically, but given the comment by the ECB the trend points downwards. Criticism of the Bank of Japan’s policy is mounting. If we see a breakout at 124, the way is paved towards 120. In the event of a breakout at 124.00, a super attractive selling opportunity. We are, however, already short EUR via.
EURJPY
Chart: EURUSD
