Alpesh Patel's NewsletterPro - ECB President Draghi can make or break the Euro today, which one will it be?

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© Alpesh Patel

The Euro is our key focus for today as the European Central Bank will release its rate decision today and more importantly ECB President Draghi will host his usual press conference. But before discussing that let’s go over yesterday’s news.

Yesterday market participants were surprised by weaker activity data from the Services sector for the Euro-zone and the UK but reaction on the currencies was minimal. Actually the Euro and the Pound gained slightly over the day against the Dollar which means that investors are still undecided on what to bet on and prefer to see what Mario Draghi has to say first.

The Dollar had good news coming from the Non-Manufacturing ISM showing that the Services sector is performing well but this failed to be reflected on the currency’s price. The employment component of the index was also positive hinting a strong Non-Farm Payrolls release tomorrow. All in all, Euro and Pound seemed unfazed by the bad news and the Dollar failed to gain on the back of good news so what’s going on? Nothing, investors are simply being cautious at this time ahead of two important events today and tomorrow: the ECB rate decision and the unemployment data on Friday with the NFP report.

Turning our attention to today’s main event, the ECB President Draghi will be speaking to the press  after the release of the bank’s key interest rate. The question here is simple: will Draghi acknowledge the recent improvements in German data or will he instead focus on the low inflation? The reality is that data from Germany showed good growth during the recent month and this is a reason to be optimistic about the Euro area’s outlook. On the other hand, inflation in the Euro-zone is still very low and shows no signs of improvement.

Our opinion is that Draghi has little room to be optimistic about the Euro’s outlook at this point. Germany might be doing well in general but the rest of the Euro-zone’s countries are struggling and yesterday’s figures also showed that activity in the key Services sector is not picking up. Most importantly, inflation levels are not looking good, they remain stubbornly low and show no signs of improving. So the stage is set for a dovish Draghi today but we need to be extra vigilant as any hints of optimism could surprise markets and spur an upwards rally, even if this is not our number one scenario.

Key interest rate decisions and US Initial Jobless Claims

On the Economic Calendar today, the main event is the ECB rate decision and the press conference to follow it as we discussed above. However, today the Bank of England will also release its key interest rate but we expect no changes here and without a press conference or even a statement following it we see no reason for any strong moves in the Pound. Later in the day, the Initial Jobless Claims report will offer another hint on tomorrow’s NFP data release and we will be discussing the jobs report scheduled for Friday extensively on our edition tomorrow morning.

Economic Calendar

Time

Currency

Event

Importance

Forecast

Previous

11.00

EUR

German Factory Orders

Medium

0.2%

2.2%

12.00

GBP

BOE Rate Decision

High

0.5%

0.5%

12.45

EUR

ECB Rate Decision

High

0.25%

0.25%

13.30

USD

Initial Jobless Claims

Medium

335K

348K

 

TECHNICAL ANALYSIS & LEVELS

EUR/USD

GBP/USD

FTSE 100

Gold

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