Our prop desk is again relatively quiet in line with the absence of fundamental data. Long EUR/GBP trades are pulling some profits, but this is being overshadowed by a slew of short EUR/USD positions and a short DOW position, both of which could yet be reversed.
There’s a very quiet day ahead in terms of fundamentals, a fact which has been exacerbated by many major markets including the UK and US being closed today. One key point worth watching will be Mario Draghi’s speech in Brussels as this could provide some clues over policy tightening at the ECB, although with the next rate setting meeting just a matter of days away, the messages are likely to be rather subtle.
The Aussie dollar continues to unwind against the greenback, with the weekend’s conclusion of the G7 meeting in Sicily providing little in the way of cheer over clarity as to what the future holds for global trade. As a major exporter generally and a significant supplier of natural resources to China – often seen as the factory of the world – free trade is a critical point for the country. Although the G7 statement made a commitment to removing trade-distorting practices, the US President’s stance over protectionism – renegotiating NAFTA and levying import tariffs on Mexican and Chinese goods – doesn’t sit well with the idea of these world leaders committing to ‘fight all forms of protectionism’.
Mario Draghi addresses the European Parliament at 1pm GMT today and this speech may contain further clues over the timing of any unwinding of the ultra-lax monetary policy. The ECB is well aware that the release of this news will likely provide a significant shock to the market, but there appears to be little consensus as to how it will be managed. Next week’s ECB rate setting meeting may be a more likely forum for further clues, although with the overhanging uncertainty of events such as the Greek debt bail out and the French national assembly elections still in play, there’s certainly plenty of reasons why the bank will be unwilling to send out any real signals here.
11.30pm tonight sees the release of the latest Japanese household spending numbers and a break into positive territory on the monthly print for the first time in over a year is expected. This will add weight to the idea that the country’s economy is finally seeing sustainable improvements and although the Yen has made some progress of late, given the risk of inflationary pressures emerging, this might just be the start of a winning streak for the currency.
