Good Morning All;
we’ll see now a New Daily Forex Forecast.
EUR / USD
The Euro was on the defensive during the European session on Wednesday and dipped to lows just below 1.0950 against the dollar as cross-related selling had a negative impact after the failure to break resistance. There was a change in direction in US trading with the initial spark for a recovery triggered by gains against the Swiss franc. As the dollar lost traction generally against European pairs as energy prices rebounded, there was a Euro recovery back above 1.1000 ahead of the European close. There were no significant US developments during the day with a relatively weak 10-year auction not having a major impact with overall yield trends offering dollar support. There was inevitably caution ahead of the ECB interest rate decision and press conference on Thursday, especially after the huge Euro rally seen following December’s meeting. In this environment, there was some reluctance to sell the Euro. The consensus is for a further 0.10% cut in the deposit rate to -0.40% with a possibility that quantitative easing will be expanded. Other potential measures would be a two-tier deposit scheme. If Draghi can surprise the markets, there would be greater scope for the Euro to weaken with markets braced for high volatility following the decision and press conference. The Euro was unable to break weekly highs and drifted back below 1.1000 on Thursday ahead of the ECB announcement.
The dollar initially dipped to below 112.50 against the yen on Wednesday with Euro selling against the Japanese currency an important element. There was support at lower levels and the dollar gradually moved higher as risk conditions improved slightly and oil prices rallied from lows. US bond yields also moved higher with 10-year rates pushing back towards 1.90%. There were media reports that the Bank of Japan was unlikely to cut interest rates further at this month’s policy meeting and that there was a preference for further quantitative easing if additional stimulus was deemed necessary. Dollar gains accelerated later in the New York session with a peak around 113.40 as risk appetite improved. Latest capital account data recorded a further strong flow of funds into overseas bond markets while overseas funds sold equities, although at a much slower pace with net flows again negative for the Japanese currency. Japan’s PPI data was marginally stronger than expected with a 3.4% annual decline from -3.2% previously. The yen remained on the defensive on Thursday with the dollar peaking close to 113.80, although the Euro hit resistance near 125.0.
Latest UK industrial production data was weaker than expected with the January recovery limited to 0.3% after a 1.1% decline the previous month, but the manufacturing data was better than expected with a 0.7% gain following a revised 0.7% decline previously which curbed any negative impact. There was a weaker NIESR GDP estimate at 0.3% in the year to February from 0.4% previously, reinforcing expectations of a significant underlying slowdown in the economy. The RICS house-price data was close to expectations at 50% from 48% previously. The latest EU referendum opinion poll suggested a very narrow lead for the leave campaign and polls will continue to be monitored closely over the next few days for any evidence of a sustained trend in either direction. Sterling was unable to strengthen through 0.7700 against the Euro, but did find support weaker than 0.7750 while there was support below 1.4200 against the dollar with no major change on Thursday.
The Euro moved higher against the franc in Europe on Wednesday with a jump to just above 1.1000 with some rumours of SNB intervention. Franc weakness also pushed the US currency back above parity, but the US currency was again unable to hold gains. The ECB policy decision will be watched closely on Thursday and a more aggressive than expected easing stance would tend to strengthen the Swiss currency. There would also be further speculation that the SNB could take its own policy measures at its meeting the following week with high volatility likely.