Draghi Dumps on Euro; FX Awaits US Retail Sales

Market Drivers March 14, 2018
Draghi drives EURUSD down
All eyes on US Retail Sales
Nikkei -0.87% Dax 0.39%
Oil $61/bbl
Gold $1325/oz.
Bitcoin $9000

Europe and Asia:
CNY IP 7.2% vs. 6.1%
CNY Retail Sales 9.7% vs. 9.8%

North America:
8:30 USD Retail Sales

Mario Draghi jawboned the euro in morning European dealing today pushing the pair towards the 1.2350 from its session highs of 1.2412 set in early Asia trade.

In a speech in Frankfurt today ECB President stuck to his dovish message from last week’s press conference reiterating the idea that any exit from QE will be gradual. Although Mr. Draghi noted that inflation was on the right track uncertainties still remained as to the pick in the price level and even once outlook becomes less dependent on net asset purchases, monetary policy will still need to be patient, persistent, and prudent.

Mr. Draghi’s message was echoed by ECN council members Coeure ane Praet, both of who reiterated the notion that inflation remains below from the central bank’s target of 2%.

The concerted effort by ECB officials indicates the realization by policymakers that the persistently high exchange rate for the currency is having deflationary impact on price levels. And while ECB officials are not considering any overt intervention measures, the form of soft jawboning is clearly an attempt to slow down the rise of the euro and keep it below the 1.2500 mark.

By all measures, the euro should be lower as interest rate differentials between US and Europe continue to expand, but chaotic White House policy, muted inflation data and so far sub-par growth in 2018 has cast doubt on the ability of the Fed to follow through with its hawkish talk.

Today’s US Retail Sales will be a key tell on the strength of the US consumer and the impact of the newly enacted tax cut that presumably added more discretionary income to consumers pockets this year. Market expectations are for a rebound of 0.3% versus -0.3% the period prior. If spending does recover, it would provide a boost to dollar bulls which has been constantly derailed in their attempt at a rally, by the turmoil in the White House. USDJPY could take and hold the 107.00 figure if spending proves to be healthy while EURUSD, already weakened by Draghi’s comments could tumble through 1.2350 support.