Dovish ECB Smashes Euro
It’s been a huge week for the markets already, most of us have already put Tuesday’s US – North Korean summit to the back of our minds and are now digesting 2 crucial central bank meetings and a host of tier 1 data. Without a doubt, last night’s ECB meeting has had the most effect on the currency markets with a much more dovish and probably sensible tone from Mario Draghi smashing the Euro down nearly 2.5% on the day against the greenback and significantly on the crosses.
This comes within a day of a more hawkish Fed and EUR/USD bears will be rubbing their hands now at the prospect of much more downside potential than at the start of the week. Of course it’s never that simple and there are plenty of other factors relevant in the market at the moment, but given the tone of both central banks and the fact that we are moving into the northern hemisphere’s summer trading season then we should see continued pressure on the pair over the next few months. Not surprisingly the USD was stronger across the board against all the majors, equity markets faired well with the Euro STOXX finishing the day up 1.37% and the US Indices mainly following suit.
The week’s not over yet and we have another major central bank meeting to get through today with the BoJ rate announcement in the Asian session, once again it’s case of no change for the rate and investors will be looking for any change in stimulus policy from the bank. With inflation still languishing well behind the BoJ target and growth slow but steady it’s likely to be more of the same in terms of rhetoric and markets will probably remain little changed after the press conference – of course any sharp change will see significant moves as we’ve just seen with the ECB but in this case I think it’s much less likely. It’s relatively quiet in terms of fundamental data through the London and New York sessions which should give investors their first chance to digest all that’s gone on this week and look for fresh levels to enter the market.