Can EURUSD Keep Its Peppy Ways from ECB?

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Brexit still in talks
Equities firm up up on FDA hopes
Nikkei -0,23% Dax 0.17%
UST 10Y 0.93
Oil $46
Gold $1837/oz.
BTCUSD $18202/oz.

Asia and the EU
No Data

EUR ECB Presser 8:30
USD CPI 8:30

Markets were generally quiet in Asian and early European trade with equities slightly bid while FX was mixed with the dollar stronger against the yen and sterling but weaker against the euro.

The Brexit talks continued their endless conversation with both parties now pushing the deadline beyond Sunday, but the EU has already prepared a contingency document that would assure continuity in the basic services like transportation and aviation while maintaining the status quo on fisheries.

At this point the market is in a serious state of Brexit fatigue and it seems that any result regardless of whether we have a deal or not will be anti-climatic with FX traders likely taking a wait and see attitude as to the economic effects of the divorce.

Meanwhile the focus will turn to Frankfurt where the ECB is holding its monthly meeting and presser with the market anticipating that Madame Legarde may increase the scope of the PEPP program to maintain the monetary stimulus to the beleaguered EU economy.

With fiscal stimulus mired in political wrangling between the EU and the former Soviet satellites of Poland and Hungary the European monetary authorities are likely to remain especially accommodative in order to ensure there is ample liquidity in the system. Rates across the union have fallen precipitously with even southern European credits like Portugal now trading at negative yield but as some analysts have pointed out the low yield regime is very punishing to savers who now require much larger capital in order to receive any return which is why the EU desperately needs fiscal spend in order to increase consumption.

The ECB for its part is likely to top up the PEPP program but unless the central bank also decides to cut rates further the EURUSD is unlikely to see much downside as it continues to hold bid above the 1.2000 figure. Although the higher euro may be having minor impact on German exporters, the ECB is unlikely to make any comment on currency rates until and unless the pair moves towards 1.2500.

Boris Schlossberg
Managing Director

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