Raphael Sonabend, FX Analyst
Draghi came, Draghi saw, and three and a half years later, Draghi implemented QE. Whether or not he conquered, remains to be seen. Wasting no time yesterday, he announced the purchase of sovereign bonds less than a minute into his speech. As sources ‘in the know’ ardently claimed the plan would involve pumping €50Bn a month into the economy, Draghi in fact announced a scheme of €60Bn a month from March 2015 to September 2016 (totalling €1.1trn). Despite this total figure being larger than the ECB need to meet their goal of expanding their balance sheet by €1trn, analysts are already claiming that it won’t be enough to raise inflation. Draghi himself stated that structural reforms were necessary within all Euro-area countries, a phrase he has repeated several times over the past few years. The euro slumped against all counterparts yesterday as Draghi’s plan exceeded predictions. Data today is unlikely to have too much affect as analysts continue to asses Draghi’s words, reports on the conference are more likely to create impact. At 09:30, retail sales from the UK are forecast to fall to -0.6% from 1.6%, a low prediction but not a surprising one as shops were deserted after Black Friday sales. At 13:30, Canadian monthly CPI is forecast to fall to -0.5% from -0.4% however after the BOC report earlier in the week, this is likely to have already been priced into the markets. With the Greek election on Sunday, volatility could continue throughout today’s session.
GBP/EUR: Currently trading at 1.3280
- Draghi’s speech saw the euro plummet against the pound and this pair managed to breach 1.323 in this morning’s session. With the Greek elections coming up on Sunday, we anticipate another day of volatility, possibly with the pound covering more ground against the euro. Draghi’s words promised a larger-than-expected stimulus plan, whilst compromising with Germany so that central banks would bear the risks that this plan could present.
- Early morning Eurozone data has seen French flash manufacturing PMI rise to 49.5 whilst German flash manufacturing PMI fell to 51.0. The pound’s gains could continue throughout the day, despite UK figures predicted to drop off this morning. As the pound continues to climb on the euro, traders will be considering whether 1.33 could soon be broken.
GBP/USD: Currently trading at 1.4980
- Unsurprisingly, we saw another large EUR/USD sell-off during Draghi’s speech and the dollar therefore gained against all counterparts. Cable fell to the lowest level since July 2013 and the pound is currently struggling to limit the greenback’s gains. Whilst the BoE claim that the Eurozone’s plan should be beneficial for the UK economy, traders preferred to invest in the dollar, which is considered to be a ‘safer’ currency.
- Poor UK retail sales today could provide more momentum in the dollar gains. However trading is more likely to focus on speculation prior to the Greek elections on Sunday.
EUR/USD: Currently trading at 1.1280
- This pair has fallen from 1.1650 to below 1.127 since the start of Draghi’s speech yesterday afternoon. After Canada cut their overnight rate, ECB announced QE, and Syriza led the polls, the dollar has become an unstoppable force, especially against the euro. With the Greek elections only two days away, the dollar could continue to surge.
- Today’s trading is likely to see volatile trends continue. Mediocre Eurozone data this morning has seen no effect on this pairing whilst poor Canadian CPI data this afternoon could help dollar gains.
GBP/AUD: Currently trading at 1.8814
- The pound continued to gain on the Aussie yesterday as traders favoured Sterling over the euro after Draghi’s speech. Climbing two cent over the course of the day, the pound could continue to rise over the weekend. After the BOC cut their overnight rate and the Aussie plummeted, speculation immediately began over whether or not the RBA would cut their bank rate on 3rd-Feb (some economists have predicted a 40% chance of this happening).
- Sterling gains could continue throughout the day as volatile trading continues. As with all commodity currencies the Aussie should receive strength from a powerful dollar however this is unlikely to happen today.
GBP/NZD: Currently trading at 2.0024
- This pair traded within its usual large range yesterday and was mostly unaffected by the ECB meeting. This does not come as a surprise as the Kiwi would have received strength on the back of the greenback’s gains.
- UK data today could have an effect on this pairing and Kiwi-traders will therefore turn to retail sales this morning. Forecast to fall -1.6%, this low figure is unsurprising after a drop in sales following Black Friday deals.
GBP/CAD: Currently trading at 1.8578
- Following the BOC’s announcement that their overnight rate would be cut, the pound gained almost five cent on the Loonie; two cent of this was recovered by the CAD in yesterday’s session. Whilst the Loonie attempted to gain further on the pound, poor Canadian figures and a negative report limited its advances.
- Low UK retail sales today could aid the attacking Loonie in covering more ground against Sterling however disappointing Canadian CPI data could prevent heavy gains. A Syriza win on Sunday could also help the Canadian dollar as traders are likely to buy USD and sell-off euro.
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