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Draghi Pumps Up Euro But Fed Chair Could Reverse The Move

Draghi Pumps Up Euro But Fed Chair Could Reverse The Move

Market Drivers for June 27, 2017

Draghi pumps up euro

  • USDJPY retreats from 112.00 on Syria worries
  • Nikkei 0.36% DAX -0.64%
  • Oil $42/bbl
  • Gold $1252/oz.

Europe and AsiaNo Data

North America USD: Yellen Speaks 12:00

Mario Draghi sent the euro soaring in early morning European trade when he indicated that ECB policy may soon move to neutral from accommodative and stated that the recovery in the Eurozone is in full bloom.

Speaking at an ECB Forum on banking, Mr. Draghi painted a generally upbeat picture of economic conditions in the Eurozone noting that the central bank sees EZ growth above trend and that all signs are now pointing to a strengthening and broadening recovery in the region.

Mr. Draghi, however, added that inflation remains muted and that it is not yet durable or self-sustaining. Still, he affirmed that policy is likely to change to a more neutral stance in the near future, suggesting that the ECB may be making preparations for a taper.

The news sent EURUSD through the 1.1250 level in morning Frankfurt dealing as Mr. Draghi’s remarks created a furious short-covering rally in the pair. Still, the euro faces formidable resistance at the 1.1300 level and would only challenge that figure if remarks later in the day by Fed Chief Janet Yellen turns out to be dovish.

Ms. Yellen is scheduled to take part in a discussion on global economic issues at London’s Royal Academy at 1700 GMT today and the general consensus is that the Fed Chair is expected to maintain her hawkish posture despite some recent signs of a slowdown in the US economy. Last night, San Francisco Fed President John Williams echoed her sentiments, stating that “If we delay too long, the economy will eventually overheat, causing inflation or some other problem.”

If Ms. Yellen does indeed stick to the script, the dollar may rebound in NY afternoon trade with USDJPY especially likely to rally towards the 112.00 level once again. The pair made a foray into that region during Asia session trade but quickly retreated on news of escalating tensions between the US and Syria. Still, the geopolitical concerns will likely retreat into the background if Ms. Yellen reaffirms her view that US rates are going up, which is likely to push US yields and help USDJPY propel through the 112.00 figure as the day proceeds.

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