EUR/GBP sets a (minor) new correction low

ECB press conference didn’t stop euro deceline

On Thursday, EUR/USD remained under pressure ahead of the ECB press conference. USD/JPY was well bid too, supported by ongoing constructive equity sentiment and higher core bond yields. During the press conference the euro spiked temporary higher, but the move was reversed almost immediately. EUR/USD even set new lows below 1.10 later in the session. The trade-weighted dollar (DXY) set a new correction top in the mid 96 area.

Overnight, Asian equities trade mostly in positive territory. The strong dollar is supportive for most markets in the region. The ECB starting QE and adding liquidity might be a positive, too. The Japanese Topix trades at the highest level since end-2007. USD/JPY is off yesterday’s high in the 120.40 area and hovers near the 120 big figure. EUR/USD is holding in a tight range just north of 1.10.

Today, preliminary reading and the details of the EMU Q4 GDP will be published. The report is interesting but a bit outdated. The impact on currency trading should be limited. Investors will again stay in wait-and-see modus, counting down to the US payrolls. Over the previous months, the labour market performed strong, even as other indices from the US showed a less buoyant picture. We see downside risks to the consensus for the February payrolls. If so, markets will try to find out whether it is enough to delay further steps in the Fed’s normalisation process. Such a scenario might push rate hike expectations further out beyond the June meeting and slow the recent rally of the dollar. However, for EUR/USD the payrolls should be really weak to trigger a protracted rebound. The ECB starts QE and if the assumption is right that foreigners will sell bonds to the ECB (and also sell their euros), any substantial uptick in the euro will probably be seen an opportunity to sell. For the likes of USD/JPY, a weak payrolls report might trigger a setback, too. However, for this cross rate, the reaction of the equity markets will be important. Will equities lose that much ground in case of a soft payrolls report? Probably not. If so, the damage for USD/JPY could be limited, too. So, there might be somewhat of an asymmetric reaction: moderate dollar losses in case of a weaker than expected payrolls report; further gains in case of a strong report.

The technical picture for the EUR/USD cross rate turned further negative as the pair dropped below the previous cycle low. On the downside, next support is seen at 1.0765 and 1.0504 (2003 lows). The pair is moving into oversold territory, but it is not in an extreme position yet. On the topside the 1.13/1.1390 area is a first reference short-term. A rebound north of 1.1534 would question the established downtrend. We maintain a EUR/USD sell-on-upticks approach but still hope for higher levels to add EUR/USD short exposure. A weaker than expected payrolls report might provide such an opportunity. For USD/JPY the key 120.83/121.85 resistance stayed out of reach for now. The pair holds well within the 115.57/121.85 trading range. A sell-on-upticks approach within this range is preferred.

EUR/GBP sets a (minor) new correction low

Yesterday, cable basically held a sideways trading pattern in a relatively tight range around the 1.5250 pivot as there were few UK eco data. The BoE as expected left its policy rate unchanged and gave no statement. Markets will get more insight on the internal debate within the BoE from the Minutes of this meeting on March 18. EUR/GBP followed the intraday gyrations of EUR/USD.
EUR/GBP spiked briefly higher during the ECB press conference, but this move was also reversed very soon. EUR/GBP touched a new correction low in the 0.72 area.

Today, there are only second tier eco data on the agenda in the UK. So the sterling cross rates will in the first place be driven by the US payrolls (cable) and by ongoing market positioning as the ECB starts QE bond buying in Monday. We maintain a sell-on-upticks approach for EUR/GBP, especially as we expect the euro to stay under moderate pressure as QE is implemented. Short-term, sterling apparently needs a breather after the recent rally, but for now this applies only to cable and to for EUR/GBP as the euro remains in the defensive across the board.