Mike Paterson’s Daily Forex Brief
Yesterday the BOE and ECB left interest rates and QE on hold as expected, but in the ECB press conference Draghi appeared not to rule out further monetary easing and traders took their cue to unload a few Euros.
Essentially there was nothing new in Draghi’s comments but with a repeat of his recent view while suggesting that the relative value of the Euro was down to market forces we saw the Euro fall steadily through the afternoon. Perhaps the market had been looking for a more positive statement on the Eurozone economy or, as had been reported during the week, an endorsement of the stronger, or simply that they were over-bought and needed an excuse to sell.
Either way we’ve seen EURUSD fall significantly to 1.3380 from yesterday’s highs of 1.3576, dragging with it EURGBP down to lows so far of 0.8510 (GBPEUR up to 1.1750) from highs yesterday of 0.8658 (1.1550). EURJPY has also seen a severe correction exacerbated by USDJPY’s failure to breach 94.00 for the second time and that pair has fallen back to 92.16 before finding the expected buyers in the dip.
I warned that we were in for a lively day and that’s exactly what we got once again. The morning session was indeed dominated by BOE Governor-elect Carney’s testimony to the Treasury Select Committee and after some fairly inane early questioning he dropped a news-bomb by suggesting that he would break away from conventional handling of monetary policy said QE had diminishing returns.
Cue a sharp rally in the Pound with GBPUSD jumping 80 pips to 1.5770 only to run into the expected sellers ahead of 1.5800 again, but it set the tone for a strong performance overall from the UK’s recently beleaguered currency. As EURUSD got slapped, along with the Aussie dollar which finally fell to the pressure I had previously anticipated we saw the GBPUSD hold its own, and GBPAUD rise to 1.5318 with GBPCHF following suit up to 1.4452.
The Aussie dollars fall though hasn’t seen the follow-through some were calling for with AUDUSD finding buyers around 1.0255 and bouncing back to resistance areas around 1.0330. Seems like selling AUDUSD rallies is still the way to go though.
So what can we expect in the aftermath today, a Friday to boot? Perhaps some consolidation, giving traders time to reflect how far this correction might go but we should also expect some further chaos and mayhem thrown in for good measure. US Trade Balance data at 13.30 GMT should have impact.
And let’s hope the mighty Shrimpers of Southend make an impact tomorrow to pick up another 3 points while the rugby fans amongst us will look forward to another feast of 6 Nations action. Bring it on!
Have a great week-end all.
Interbank Rates at 08:45 BST
Today’s Data: BST
13.30-US – Trade Balance
15.00-US – Wholesale Inventories
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Mike ‘Oscar’ Paterson has been in the Forex trenches for nearly three decades working as a senior Spot trader in London at UBS, Chief Dealer FX at the State Bank of Victoria and in charge of Spot CHF at Credit Suisse with a daily turnover in excess of $1.5 billion. Mike now works as an independent consultant providing a fully bespoke service to the corporate and private sectors in physical FX delivery as well as guiding those who wish to improve their currency trading. Mike also presents seminars and workshops and writes for a number of publications.
To contact Mike please call +0044 (0) 1732 700383 or email firstname.lastname@example.org
The views expressed above are those of the author and should not be taken as investment advice. MSP Foreign Exchange Services will have no liability for, or to, any persons executing trades based on the content above.