Euro weakness little more than profit taking?

10 May, 2017

Our prop desk continues to hold that long GBP/JPY trade from the start of the week, whilst some short EUR/JPY exposure is also being seen. A series of short Swiss Franc trades have also been closed out in recent hours delivering some meaningful profits, although a long oil play from the end of April has now been abandoned.

We have another relatively light day in terms of economic announcements although the Euro will be in focus. Despite the positive result in the French election at the weekend, the common currency remains on the back foot, but with Mario Draghi facing straight talking Dutch politicians over his commitment to QE later today, longer term hints over the ECBs plans could be unearthed.

The Euro is losing ground against major crosses as the markets continue to digest what should have been a rousing result for the currency with Macron winning the race to become France’s next President. The margin was comprehensive and although there’s still some concern over how the National Assembly vote will pan out next month, the mood does seem to be more pessimistic than may have been expected. This could be explained away on the basis of mere profit taking after an uncertain spell for the currency, but a drift below 1.0800 against the greenback would warrant further questions being asked.

Mario Draghi is set to meet with Dutch politicians today, where he is set to come under scrutiny over the ECB’s ongoing support of ultra-low interest rates. The ECB’s stance hasn’t manifested itself into the election issue that some had predicted at the start of the year, but the more successful Eurozone economies are certainly feeling the effects here. Any hints as to the timing of scaling back asset purchases will likely be jumped upon by the market and a hawkish assessment again could lend some support to a faltering Euro. The meeting is due to commence at 11am GMT.

The Reserve Bank of New Zealand is due to announce its latest monetary policy at 9pm GMT this evening and although there’s no expectation of any headline change, again the detail will be critical in deciding what happens next. The Australian economy is facing an uncertain outlook so anything from Governor Wheeler that points towards a more aggressive policy outlook at the RBNZ could see AUD/NZD resume its downward drift.

Weekly US oil inventory data is due for release at 2.30pm GMT and given yesterday’s mixed assessment from the EIA – stockpiles are falling but production won’t be depressed for long – further direction will be helpful. US front month crude barely waivered in light of yesterday’s announcement and this could be indicative of some sitting on hands ahead of Thursday’s Opec monthly report too, but from these levels there’s certainly scope for a relief rally if the story of undersupply can be validated.

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