Increasing investors believe that ECB is going to discuss tightening in months, long EUR/USD?
Draghi is likely to discuss ECB’s reduce of bond purchasing plan in September
Euro strength came as the markets brushed aside efforts by Mario Draghi, to avoid sounding hawkish, and instead concentrated on his apparently relaxed attitude towards the currency’s recent appreciation.
Draghi said that the rise in the euro’s trade-weighted index and the increase in bond yields have not counterbalanced the accommodative monetary policy of the ECB, and that’s good news for the euro bulls’ positions because there’s no hint here that the ECB might act to try to limit the euro’s rise. But while this suggests that the euro has some considerable upside before the ECB, and eurozone finance ministers become concerned, the upside is still not limitless.
We still expect the ECB will try to manage its monetary policy normalisation in a way that avoids excessive euro strength, although it seems to accept some rise in the euro at this moment. Also, explanation for the recovery in regional government bonds over the past week could be some reassessment of the outlook for ECB policy in the other direction, which could mean that the ECB is not actually in a rush to tighten unconventional monetary policy.
Global market focus remains firmly on currencies as the euro extended its sharp gains from Thursday to touch 1.1682 against the dollar, the highest since August 2015 before edging back to $1.1662. For the week, the euro was up a hefty 1.7%. Trump has said many eccentric things about the economy but done little damage.
Besides the euro strength, the dollar also found some weakness on its domestic development. Trump has said many eccentric things about the economy but done little damage, and his first six months in office have achieved as little. But with this week’s collapse of the congressional attempt to replace Obama’s healthcare system, none of Mr Trump’s priorities on domestic policy, such as healthcare, tax reform, infrastructure has made substantive progress. This does not appear set to change soon.
Our Picks
EUR/USD – Slightly bullish. We expect this pair to rise towards 1.1718 amid expectation on ECB to reveal tighten signal in two months.
USD/JPY – Slightly bearish. Traders may continue to short this pair ahead of FOMC meeting and pressure the price towards 110.20 .
XAU/USD (Gold) – Slightly bullish. Recent uptrend could bring Gold price towards 1260.
Top News This Week (GMT+8 time zone)
UK: GDP q/q. Wednesday 26th July, 4.30pm.
We expect figures to come in at 0.4% (previous figure was 0.2%).
U.S. : FOMC rate decision. Thursday 27th July, 2am.
We expect figures to remain unchanged at 1.25% (previous figure was 1.25%).