The euro slightly depreciated against the dollar on Thursday, after the European Central Bank left monetary policy unchanged in July. It was widely expected that the central bank would stay put on interest rates, with the spotlight directed towards Mario Draghi’s press conference which is likely to come under heavy scrutiny.
With Draghi’s optimistic remarks in Sintra fuelling speculations of QE tapering by the ECB, investors may seize this opportunity to obtain further clues on whether the central bank will announce plans to reduce its bond-buying program in September. Although the economic conditions in Europe remain encouraging, inflation is still a sore spot and Draghi may be heavily quizzed on this.
If ECB hawks make an appearance and offer bulls some fresh inspiration in the form of renewed QE tapering expectations, the EUR/USD may receive a solid welcome boost towards 1.1615. On the other hand, if Draghi picks his words carefully and gives little away at his news conference, the EUR/USD is likely to experience a technical correction towards 1.1400.
Sterling bears unfazed positive retail sales
It is interesting how the sterling tumbled against the dollar on Thursday despite UK retail sales rising by 0.6% in June thanks to warmer weather. While the impressive rebound in retail sales compared to May’s dismal -1.2% decline could raise hopes over the resilience of consumers amid Brexit, such may not be enough to dissolve fears regarding the longer-term outlook for spending.
With rising inflation and falling real wages negatively impacting household spending power, concerns still remain elevated over the sustainability of the UK’s consumer driven economic growth.
Brexit developments have also played a leading role in the sterling’s selloff today as concerns rose over the negotiations in Brussels smashing into a steel wall. Reports circulating over the lack of breakthrough regarding citizen rights or the Brexit divorce bill, have simply compounded to the sterling’s woes and this can be reflected in price action.
With uncertainty still the name of the game when dealing with the British pound and bears finding inspiration from the Brexit blues, further downside may be on the cards. From a technical standpoint, the breakdown below 1.3000 on the GBP/USD has provided sellers with the permission to attack prices towards 1.2850.
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