Yesterday, following a few sessions in which the euro couldn’t gain ground, enough time had passed to give the euro bulls the confidence and courage (in the US session) to buy euros. EUR/USD closed at 1.3188, a 79 tic’s gain from Wednesday evening.
Commodities, that also lagged the recent risk-on rally just like the euro, sprung up. US economic data was mixed, as initial claims were much higher than expected. This looked like statistical distortions?), but the trade deficit was much smaller than expected raising Q1 GDP growth expectations.
The revival of EUR/USD started around the time the results were published. The European economic data and the monthly ECB report hadn’t any impact on trading, as the former were outdated and the latter contained no new info. Regarding central banks, manifold Fed governors (Dudley, Raskin, Lacker and Kocherlakota) spoke. The last two remained on their hawkish positions, but more important were the comments of the others that represent the current majority view inside the FOMC.
The influential (and dovish) NY Fed Governor Dudley still supported the current policy stance (low rates through late 2014) just like governor Yellen did the day before, but he doesn’t seem ready to push for more QE at the April meeting (which was a risk). He said the economic reports has been a bit more upbeat of late and the “recovery may be finally establishing a somewhat firmer footing.”
He suggested too that weather conditions may have been a factor in the disappointing March payrolls report. Of course, he counterbalanced these words by saying that:
we are not out of the woods and the unemployment rate is still unacceptably high
So, we think that the FOMC will stand put at their meeting later this month and wait for more evidence before eventually deciding on new policy initiatives. Some commentators interpreted Dudley’s words as dovish, in which case it might have been a positive euro driver, but we don’t share that view. More likely, the market already positioned itself for an unchanged FOMC decision later this month.
Singapore had very strong GDP figures which convinced the central bank to inform markets it would allow a strengthening of the local dollar versus the US one, which occurred promptly. Regarding eco releases, European data are uneventful, but US consumer confidence and CPI may have an impact if they deviate sharply from consensus. Inflation is expected to have slowed and confidence to have stabilized. Stronger confidence and less slowing in inflation should be modestly dollar positive.
However, it may be the speech of Bernanke, the wild card that decides on today’s direction for EUR/USD. However, following speeches of Dudley and Yellen, we don’t expect Bernanke to surprise by suggesting that another QE programme might be just around the corner. Should he surprise in this direction, the dollar would be heavily sold.
All these factors are a bit a mixed bag. Yesterday’s move higher of the euro was nice, but not of the kind to be wildly enthusiast about, even if some modest extra gains shouldn’t surprise. In the days before yesterday, the euro traded dreadful, unable to move away from levels near 1.3030.
So, we see little reasons to become all of a sudden euro positive. If fears about the euro crisis fade further, the euro may indeed move a bit higher, but resistance at 1.3386 should provide a good opportunity to short the single currency again. Longer term, we favor another down-move of the pair, but some stronger trigger may be needed to push the pair below 1.3004/1.2974 support area, which would open the way towards 1.2623 (January low).