Euro Turns at Highs Leaving Longs Stranded

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Market Drivers January 17, 2018
Euro Turns at Highs
Market looks to BOC
Nikkei -0.35% Dax -0.19%
Oil $64/bbl
Gold $1335/oz.
Bitcoin $10800

Europe and Asia:
EUR EZ CPI 1.5% vs. 1.4%

North America:
CAD BOC 10:00

Another very active night of trade in Asia session today with EURUSD taking out the 1,.2300 figure in a whirlwind of stop running activity as it hit three year highs shortly after the Tokyo open.

The enthusiasm didn’t last, however, as more jawboning from the ECB send the pair tumbling in early London dealing after ECB VP Constancio noted that he was concerned about the movements in the pair. Speaking to La Repubblica, Mr. Constancio stated that,”We are not changing the path of our monetary policy. With the decision to halve our monthly bond purchases we have adapted our monetary policy to the new economic context and consequently to the higher inflation ahead. But this does not mean that monetary policy will not remain very accommodative for a long time. We see no inflation risks. We should not choke off growth too soon”

The selloff took the EURUSD close to the 1.2200 level, but the pair found support at that level and held steady bouncing towards 1.2250 by mid-morning London dealing after CPI data revealed that core inflation is slowly creeping higher. Core CPI remains well below the ECBN 2% target – rising to 1.5% this month. The slow pace of inflation certainly gives ECB scope to maintain QE for a while longer, but with growth in the region picking up the market is clearly anticipating the tightening and pushing the pair higher irrespective of ECB concerns.

One factor in favor of euro bulls is the ongoing political turbulence in Washington DC. With the budget deal still not done the pressure on the dollar could continue especially if lawmakers cannot avoid a government shutdown. USDJPY bounced off the lows in yesterday Asian session open, but the pair could quickly tumble towards the 110.00 level if the news out of DC suggests no compromise.

Boris Schlossberg
Managing Director

One thought on “Euro Turns at Highs Leaving Longs Stranded”

  1. Hi, the political turbulence in DC, with Gov shut down and Mueller investigation, is of course weakening the USD. But still the real political and economical troubles around EU is in my view much more serious, for example;
    – Pension funds are unfunded and in crisis with recoed low interest rates for 9-10 years, incl in Germany and Spain among others.
    – ECB holding 40% of all Eurozone Sovereign Debt on its balance sheet, with zero or subzero rates. Such holdings will become worthless when interest rates start to rise.
    – Banking crisis with unsustainable levels of NPL, especially in Italy, Greece, Spain and Portugal.
    – 30% unemplyment rate in Southern EU and even a higher rate among <25 y in these countries.
    – Catalonia secession.
    – Italian anti-EU sentiment in coming elections.
    – Merkel's lack of public and electoral support to form Gov.
    – Macron's lack of public support to realize promised reforms.
    – Brexit fighting.
    – Immigration crisis unsolved and monthy/weekly religious terror attacks.
    So what is a little US Twitter-ediction or bad-mouthing in comparison to EU's problems, even if it comes from a the WH?

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