Today’s price action has based largely on the EUR rally inspired by the ECB president’s prepared speech at the ECB forum on central banking. A full and frank outline of current policy thinking reiterated the positive outlook on the economy as broad based expansion fed through on the back of the current accommodative stance.
His assertions that deflationary forces had been replaced by reflationary ones only added fuel to the fire, and after a brief dip under 1.1200 this morning, EUR/USD has been working through a series of sell orders en route to 1.1300 which has been temporarily breached.
Cross rate gains have been mixed, but with US Treasury yields holding up, USD/JPY has held its ground and edged back towards 112.00 and above, and this has led EUR/JPY through 126.00 with further gains on the horizon. EUR/CHF has been a little more reluctant to push up in line with the lead spot rate, but with the USD index hit lower, USD/CHF has been more inclined to move inversely to its EUR counterpart and is now vulnerable to a retest of the early June lows.
USD/JPY has room to test towards 113.15-113.30, but sellers will be stepping in if the 10yr Tsy rate nears 2.20%.
Gains against GBP have also been on the modest side, as resistance in the 0.8850-70 area continues off a EUR/GBP ramp despite the obvious factors hitting the Pound these days. A belief that the Brexit tone – more so from the UK side – look to have given GBP some support, and this has seen cable making some very modest ground off the back of the EUR/USD move, with little from Carney and the Financial Stability Report on monetary policy as the governor tried to steer clear from any direct references on rates given the volatility seen lately over conflicting views inside the MPC (he touched on this to a small degree, citing differences will develop on occasions). Cable has pushed up to highs around 1.2780 so far this afternoon, and it will be a tough call to push much past these levels, with a heavy tranche of selling interest ahead of 1.2800.
For the commodity currencies, the action in AUD and NZD looked to be all over by mid morning, with NZD in particular running into overbought territory and hitting a wall of offers in the key resistance zone at 0.7330-580. There is no denying the strong fundamental backdrop which has seen fresh buying into NZD, but moves look extreme here more so than in AUD, where a stabilisation in metals prices have bolstered the latter. AUD/NZD continues to dig in ahead of 1.0350-70 and is tentatively above 1.0400 again but stuttering as AUD/USD has also stalled on the upside ahead of 0.7625-40.
In contrast, the CAD is still looking to extend on the upside, and may well look to outperform over coming sessions, and we cannot discount the oil price factor in this despite the BoC’s comments that Canada has adjusted to this to a larger degree. Even so, the less dovish stance at the central bank is playing a major part in maintaining an interest to sell at better levels, and the recent lows in the mid 1.3100’s are now in focus, but strong demand cited ahead of this.
Later today we have Fed chair Yellen speaking in London, so the prospect of more volatility ahead. Looking to Wednesday, more from the ECB’s Draghi and BoE Carney, with BoJ’s Kuroda also on the list of speakers tomorrow as is the BoC’s Poloz.
Data-wise, we have US trade data and wholesale inventories, followed by pending home sales later in the day. EU money supply out in the morning.