Will EUR/USD Ignore the ECB Presser?

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Market Drivers Jan 20, 2016

Risk rebounds but Shanghai spoils the party
All eyes on ECB
Nikkei -2.80% Eurostoxx 0.01%
Oil $28/bbl
Gold $1099/oz

Europe and Asia:
NZD PMU Manufacturing 56.7 vs. 54.7
AUD New Home Sales -2.7% vs. -3.0%

North America:
ECB Presser 8:30

It’s been a choppy night of trade in the FX market with risk currencies first recovering off strong North American close only to stumble once again when the Shanghai index failed to join the party ending lower by nearly 3%.

Aussie, kiwi and USD/JPY all opened higher after the US indices closed the day off the lows and oil bounced from its fresh multi-year declines. But the enthusiasm in early Asia gave way as Chinese equities came under pressure once again and reversed all those flows creating a rollercoaster ride for any traders that bought the breakouts.

Despite some tepid signs of stabilization the markets remain jittery over the state of global growth and Chinese investors in particular continue to sell any semblance of a rally in order to liquidate their positions. Still, with commodities driven into the ground since the start of the year and sentiment so heavily skewed to one side, some sort of short covering rally is due. Today’s oil inventory numbers could provide the first hint of a turn if the data either proves better than expected or price simply does not set fresh lows on any negative read.

Oil will continue to drive the larger macro picture in the capital markets today, but in FX the focus will be on the ECB presser due at 13:30 GMT today. The market expects almost nothing from the meeting today as the central bank will have no new projections to offer and is therefore very unlikely to provide any new policy prescriptions to the market. Indeed the key focus of the Q&A is likely to be the impact of low oil prices on ECB’s thinking. If Mr. Draghi shrugs off the low oil prices as temporary effects the market will view such rhetoric as bullish for the euro as it will suggest that the central bank will not ease any further. However, if Mr. Draghi admits that oil is having a deflationary impact on the Eurozone, the market will interpret his words as a hint of possible QE to come and the pair could quickly see some selling pressure.

Generally the EUR/USD is well contained with the 1.0800 -1.1000 range and barring any serious surprises the pair is likely to remain in that zone given the lack of anticipation for today’s meeting. Indeed, the euro flows could be driven more by equity flows today rather than central bank rhetoric especially if Mr. Draghi does not want to make any waves in the market.

Boris Schlossberg
Managing Director

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