Where to now for the Euro after Mario Draghi signals an easing is coming?

May 9, 2014

Has the ECB finally got religion and are they about to embark on their own particular version of quantitative easing? It seems they might have with ECB President Mario Draghi signalling last night that the ECB is alarmed by the recent step lower in inflation in the EU and has discussed easing next month – but not until they see the ECB’s staff projections for inflation going forward.

Draghi said a decision to ease in June had not been taken, but he was giving, “a preview of the discussion we will be having.”

The impact was very positive for European shares which were strongly higher across the board but negative for Euro which lost 0.42% but remain strong at 1.3852 this morning. In London stocks rose 0.63% to 6,839, the DAX was 0.90% at 9,607 and the CAC rose 1.36% to 4,507. In Milan and Madrid shares surged 2.3% and 1.7% respectively.

Looking at the price action in the Euro it is clear that yesterday was an ugly all encompassing and engulfing negative day. What we may see now is a convergence of the obvious fundamental negatives that surround the Euro and a changing technical outlook.

But only if this big trendline at 1.3782 gives way.

In the US Stocks were less excited by Draghi’s comments although Fed Chair Janet Yellen did reiterate the previous days comments implying rates aren’t moving up any time soon. At the close the Dow was up 0.2% to 16,551, the Nasdaq lost 0.41% and the S&P 500 was down 2 points to 1,876.

All of which left the ASX Futures up just 2 points in overnight trade with the SPI 200 June contract to 5,461.

On currency markets the Aussie is higher this morning but not on the back of the employment data as many commentators are saying but rather on the back of the strong Chinese trade data and in particular what it said about Chinese bulk imports of things like Iron Ore. It sits at 0.9376 almost 2 cents higher off the recent low. The Euro as noted above was weaker and USDJPY fell sitting at 101.52 this morning. Of the majors only the Pound stood still at 1.6939 this morning.

On commodity markets Nymex crude dropped 0.5% to 100.25, gold barely moved and sits at $1,289 oz while copper popped 3 cents – no doubt on the Chinese data – back to $3.08 lb. On the Ags corn rose 0.69%, wheat was down 0.41% and soybeans surged 1.6%.

Looking at the data today the big local release is the RBA’s quarterly Statement on Monetary Policy which will be released at 11.30am. At the same time Chinese CPI will be released so it is going to be busy around lunchtime. Tonight sees the release of German trade data, Italian and UK industrial production data and US wholesale inventories.

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