Euro starting to get it as Draghi and Yellen paint different pictures

August 25, 2014

Will traders ever really embrace the US dollar in the way that they should relative to the Euro and increasingly the Pound???

It’s a question that is starting to be answered in the affirmative even if it has taken a long time for the trends to turn and even if the outlook remains clouded. But the diverging outlooks for the economies that both Fed Chair Janet Yellen and ECB President Mario Draghi articulated on Friday night at Jackson Hole were stark. Yellen was more even handed than many expected noting both the strengths and weaknesses of the US labour market while Draghi was well, a bit downbeat.

Draghi highlighted what a moribund economic zone the EU has built and why I’m tiny short Euro as a lifestyle position – even though it’s still above 1.32 – and it is clear in his speech something needs to be done to fix the zone – but what? Joe Wiesenthal from Business Insider US has a great take on the speech you can read here. One thing worth noting Draghi did say he’s ready to act further.

Euro is now below the 200 week moving average for the first time in a little less than a year and my target into the end of 2014 is below 1.28.

Now turning to the market on Friday the Dow ended down 0.23% to retain 17,000, just, closing at 17,001. The Nasdaq rose 0.15% to 4,539 and the S&P dipped 4 points to 1988.

In Europe, unsurprisingly it was a night of red ink. The FTSE only slipped marginally off 0.04% to 6,775 the DAX dropped 0.67% to 9,339 and the CAC was 0.93% lower. Stocks in Milan and Madrid were 0.46% and 0.53% lower.

The impact locally was that the ASX futures fell 10 points to 5598 and Dec futures dipped 15. The chartist in me think the SPI 200 looks like Friday was a top technically. This week traders will be watching the iron price which fell 3.88% last week.

TOP, TOP, TOP

Asian stocks were mixed Friday with the Nikkei down 0.30% while the hang Seng gained 0.475 and stocks in Shanghai were up by the same amount after the oprice action in the us the night before. Traders won’t expect too much today given there is no data out.

On Currency markets, the euro heard what Draghi had to say and sold off down to 1.3240 its lowest level in 11 months on Friday but early Asia has slammed it a further 45 points back below 1.32. Sterling’s weakness continued as it fell to 1.6570 Friday but it is also lower this morning at 1.6547 and USDJPY was at 103.93 after a brief foray above 104 Friday but it has gapped to 104.17 this morning. The Aussie dollar was lower but still very strong at 0.9313 Friday before dipping to 0.9295 this morning.

On commodity markets iron ore fell again and with September futures at $90 a tonne it’s not far off the low for the year. Newcastle coal fell 5 cents a tonne with September futures closing at $69.65 a tonne.

Nymex crude fell 31 cents to $93.36 a barrel while gold finished at $1,279 and silver closed at $19.41. Copper climbed 3 cents to $3.20 a pound while corn, wheat and soybeans rose 0.90%, 1.05% and 2.62% respectively.

On the data front there is nothing out in Asia today with the big release German IFO tonight. In the US the Markit service and composite PMI is out along with new home sales and Dallas Fed.

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