Jul 21 • Morning Roll Call • 1825 Views • Comments Off on MORNING ROLL CALL

Euro rises to a near 24 month high versus U.S. dollar, as Mario Draghi suggests asset purchasing may end in Autumn

As widely expected, on Thursday the ECB announced that the main interest rate was remaining at zero, with the deposit rate remaining at -0.4%. The asset purchase scheme (quantitative easing by another name), also remained unchanged, at €60b per month. However, the surprise and sting in the tail, came in the commentary accompanying the press conference, at which Mario Draghi announced that the ECB could begin to reduce its bond buying programme in the autumn. Withdrawing this facility in the short term, would represent quite a turnaround from the previous proclamations.

The euro rose versus its peers as a consequence of the news; EUR/GBP reached an eight month high, up 1.5% and just below the critical 0.9000 handle, whilst EUR/USD reached a high not witnessed since August 2015, to end the day at approx. 1.1639. Both currency pairs crashing up through R3, with EUR/USD adding more than 1.2% on the day. The euro made similar gains, versus the majority of its peers. These recent gains are made all the more remarkable given that the ECB rate is still at zero and they’re currently the only Western Hemisphere central bank engaging in any forms of QE/bond buying. If rates are lifted and the programme ended, the strength of the euro could be significantly raised.

USD/JPY was down circa 0.1% on the day at 111.86, after touching a more than three-week low of 111.48. Yen fell versus the majority of its peers, with the exception of GBP/JPY, after BOJ governor Kuroda delivered no comfort in his outlook commentary that: Japan’s economy was strong enough to withstand a rise in interest rates, or a tapering of the accommodative policy was imminent, or that the BOJ inflation target will be met in the short term.

Sterling experienced a weak day versus the majority of its peers, GBP/USD falling by 1% to 1.2974, resting on S3. Brexit negotiations aren’t developing well for the UK, as their leading political negotiating team are beginning to come to grips with the fact that the E.U. hold all the cards and the U.K. has very little to offer, in terms of bargaining power.

In terms of European news, Germany’s producer prices rose by 2.4% YoY, the Eurozone’s current account remained in surplus at €30.1b for May. The UK’s retail sales bounced back, rising by 0.9%, versus expectations of the 0.6% forecast rise. European indices endured a mixed day; STOXX 50 closing down 0.02%, CAC down 0.32%, DAX down 0.04%, with the FTSE making significant gains in a correlated 0.77% rise versus sterling’s fall. Due to most FTSE 100 companies being U.S. owned, if GBP/USD falls the FTSE 100 value rises.

U.S. economic calendar news mainly concerned unemployment claims, coming in below prediction at 233k, but continuing claims remained stubbornly high at 1977k. Natural gas storage came in at 28, missing the expectation of 33. The DJIA closed down 0.13%, SPX down 0.02%, whilst the Nasdaq closed at a record high for the third day in series, up 0.08%. Gold rose by approx. 0.2% to $1243 per ounce, with WTI oil falling by 0.6%, to $46.88 per barrel.

Economic calendar events for July 21st, all times quoted are London GMT time

08:30, currency impacted GBP. Public Sector Net Borrowing (Pounds) (JUN). The forecast is for a reduction to 4.2b, from the 6.0b borrowing in May.

08:30, currency impacted GBP. PSNB ex Banking Groups (JUN). The prediction is for a reduction to 4.9b, from the 6.7b borrowed in May.

12:30, currency impacted CAD. Consumer Price Index (YoY) (JUN). The forecast is for CPI to reduce to 1.1%, from the 1.3% registered in May.

12:30, currency impacted CAD Retail Sales (MoM) (MAY). Retail sales are expected to fall to 0.3% growth, from the 0.8% figure recorded in April.

17:00, currency impacted USD. Baker Hughes U.S. Rig Count (JUL 21). The rig count will be monitored carefully, given the recent volatility of the price of WTI oil. Last week’s count was 952.

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