Euro Drops on Draghi, Aussie Bid A Gillard Ousted

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Market Drivers June 26, 2013
Aussie tests 9300 but remains capped
Euro bit heavy after dovish Draghi speech, GE Confidence rises
Nikkei -1.04 Europe -1.60%
Oil $95/bbl
Gold $1232/oz.

Europe and Asia:
CHF UBS Consumption 1.46
EUR German GfK Consumer Confidence Survey 6.8 vs. 6.6
GBP BOE Financial Stability Report

North America:
USD GDP 8:30
USD Personal Consumption 8:30

It been a very quiet summer night of trade in the currency market with eco calendar essentially barren today but high beta FX drifted lower as the night progressed with EUR/USD and GBP/USD suffering the brunt of the losses. The euro broke below the key 1.3050 support level in the wake of relatively dovish speech by Mario Draghi in Paris.

Speaking in front of the committee in the French lower house of parliament Draghi reaffirmed many of his familiar points noting that the ECB “stands ready to act again when needed.” However he also stated that “”The ECB has done as much as it can to stabilize markets and support the economy,” he said. “Now governments and parliaments need to do all they can to raise growth potential.”

“Monetary policy cannot create real economic growth,” he added. “If growth is stalling because the economy is not producing enough or because firms have lost competitiveness, this is beyond the power of the central bank to fix.”

That last statement caused the selloff in the EURUSD as currency traders took Mr.Draghi’s words to heart concerned that the ECB will not do any additional stimulus in the region. The euro drove deeper through the 1.3050 level and now the shorts may target the psychologically key 1.3000 level in the pair, especially if US data continues to surprise to the upside.

Meanwhile in Australia, Julia Gillard lost her leadership role in the Labor party and will now retire from politics. Ms. Gillard’s approval rating were in the 30’s creating massive concern among the party faithful and Kevin Rudd will now take over as PM ahead of the Parliamentary elections in the next few months. The news saw the Aussie strengthen above the .9300 level but it could not hold the figure for the time being. Nevertheless it has firmed on relative basis with EURAUD down more than 150 points on the day.

In North America today the US data including final GDP figures and personal spending report will be the key to session trade. If US data continues to surprise to the upside the EURUSD could test 1.3000 as the day proceeds.

Boris Schlossberg
Managing Director

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