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Euro plummets 200 pips on dovish Draghi statement

By OFX

Starting at home, the Aussie shrugged off a mixed employment reading that ultimately didn’t excite the market either way. In a good headline, the Australian economy saw the unemployment rate fall but also saw the number of employed people added to the economy fail to meet expectations.

Macro-economic events dominated market focus overnight with the stage set initially by the US FOMC. Early yesterday morning, the FOMC released a decidedly hawkish statement that saw the USD surge higher. However, despite the hawkish statement and indeed the US interest rate hike, the Aussie remained relatively resilient. The soft Greenback was then kicked into higher gear, when month on month retail sales data was released, posting a significant expansion of retail sales. Closing out a tumultuous day, the ECB then posted a determinedly dovish policy statement, pushing back the expected interest rate hike to September 2019 and driving the USD even higher.

The Australian Dollar now looks to take a breath to close out the week with an empty domestic calendar to look forward to. Attentions now turn to the Bank of Japan and their upcoming policy statement release.

The New Zealand Dollar is weaker this morning when valued against the Greenback, losing its traction in the second half of the day, falling below the 0.70 mark as greenback continued to outperform its rivals. The NZD/USD pair reached a 24-hour low of 0.6956, 0.5% on the day, following better than expected US retail sales numbers.

Looking ahead today in New Zealand and the domestic calendar is fairly light with just the Business NZ PMI (Manufacturing Index) which is considered to be a good indicator of the overall economic health in New Zealand. The result, manufacturing expansion in May came back down to more steady levels of expansion. The seasonally adjusted PMI for May was 54.5 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 4.6 points lower than April, but still the third highest result over the last six months.

From a technical perspective, the NZD/USD pair is currently trading at 0.6972. We continue to expect support to hold on moves approaching 0.6977 while now any upward push will likely meet resistance around 0.7000.

The Great British Pound is again weaker this morning when valued against its US counterpart. The Sterling touched an overnight low of 1.3256 as the Pound reacts to Brexit talks again. The British Prime Minister Theresa May spoke again yesterday about the amendments to the Brexit bill.

The Sterling posted a 30 pip rally against both the Greenback and Euro on the above-forecast UK retail sales data, tracking UK yields higher. UK May retail sales beat forecasts, rising 1.3% m/m after upwardly revised 1.8% m/m growth in the previous month.

From a technical perspective, the GBP/USD pair is currently trading at 1.3267. We continue to expect support to hold on moves approaching 1.3230 while now any upward push will likely meet resistance around 1.3330.

The US Dollar continued its run following FOMC’s decision to raise interest rates in their June meeting to a range of 1.75-2.00% and was stronger against G10 currencies in overnight movements.

Target ranges were upgraded in the Fed statement whereby markets are now pricing in another two 25 basis point hikes by the end of the year to have an average benchmark rate of 2.4-2.5%.

Furthermore, there were major movements against the Euro seeing the EUR/USD cross move from 1.1850 to an eventual low of 1.1660 after the release of the latest ECB policies whereby it was announced by ECB president Mario Draghi that their Quantitative easing programme will end in December.

USD/JPY was also higher overnight to hit 1.1065 benefitting from the ECB news and repositioning itself ahead of today’s BOJ rate decision and policy statement. It is expected to see BOJ Governor Kuroda maintain its guidance on monetary policy for the foreseeable future as inflation remains subdued.

The Euro lost more than 1.5% on Yesterday’s session on a more dovish than expected ECB announcement. The European Central bank pushed back potential rate hikes and downgraded their growth outlook for 2018.

On the other hand, US retail sales data came stronger than expected, following a hawkish FED, supporting broad USD strength. EURUSD reached new sessions lows also on comments from Draghi about muted inflation in the Eurozone, pushing the cross below 1.1570.

Next levels to watch for the EURUSD are 1.1508, May lows while 1.1640 should now act as short-term resistance in the upside.

The loonie was not able to take advantage of higher oil and gold prices and ended up weakening around 0.9% versus the greenback on the back of broad USD strength following US strong economic data releases and divergent policy statements from the ECB and the FED.

USDCAD posted a new session high at 1.3109 breaking above resistance levels and reaching a new year high. The important 1.32 figure should now act as first resistance and 1.3040 will probably turn now into support on any short term downside move.