- EUR plummets to nine-year low
- Single unit faces triple whammy in January
- Will Draghi compromise on QE?
- Greek ‘tragedy’ a cliff hanger
The first full week of 2015 is upon us, and the markets have already heated up from their one-week holiday slumber. The next five-days are laden with crucial economic releases including key inflation data for the Eurozone; merchandise trade data for Germany, France, the UK, Canada and the U.S. Collectively, this should gives Capital Markets a heads up on the current global growth situation. Industrial production data for key Eurozone countries will also be released. In China, CPI and trade balance will be published.
Stateside, the U.S consumer sector is the focus this coming week with the highlight being Friday’s non-farm payroll situation report for December. Payroll jobs for November came in stronger than expected, jobless claims have been low recently, so the question is whether job growth remains relatively robust. On the other hand, wage growth has been sluggish and traders will be looking for stronger growth – investors should expect the weeks trading to end on a tense note, similar to how its begun.
Markets extreme ‘volatility’
The open of the first full trading week of the New Year has been met with “intense” volatility in the currency markets, particularly amongst the EUR pairs (EUR/USD plummeted on the open to a new nine-year low before recovering to €1.1940). The ‘mighty’ dollar has also managed to make further ground against the other majors, with GBP falling sub-£1.53, and the commodity pairs (AUD, CAD and NZD) remain under renewed pressure.
Already this month looks set to be a testing time for the 19-member single unit with a “triple whammy” of events look set to trip it up. This coming Wednesday, investors should be aware that the Eurozone CPI could easily see a negative annual inflation rate. On January 22, the ECB is expected to unleash large scale sovereign bond-based QE and finally, if neither of the previous are unable to topple the EUR then the bears will have to roll the dice on the results of a very tricky Greek election result three-days later (January 25).
EUR under pressure from all angles
The EUR’s new outright lows are fuelled by a number of factors. There are now further bearish positioning going into the Eurozone’s flash-CPI this week (Wednesday), supported by ECB’s Draghi last week announcing that the central bank sees a higher risk of “failing on their inflation objectives.”
Investors are heavily speculating that the ECB will soon expand its stimulus program aimed at avoiding ‘deflation’ as the region’s economy struggles to grow.
Other major currency pairs have fallen foul on the back of the USD’s broad based strength, especially as the market is relying on a recovery in the U.S economy.
Finally, geopolitical news over the weekend related to Greece is also weighing on EUR sentiment. It seems that Germany’s Chancellor Merkel is less concerned with the possibility of a Greek exit, calling the fallout as “manageable”, while opposition SYRIZA party leader Tsipras reiterated he would move to end the austerity policies if elected later this month. Recent polls indicate that SYRIZA is ahead of the ruling ND party by +30.4% vs. +27.3% – but that lead is narrowing.
As the market heads Stateside for the first full session for the New Year, early bargain hunting by EU exporters has been seen providing initial support for the single unit. Expect technical traders to focus on the February 2006 low at €1.1826, the January 2006 €1.1800 handle for support first go around. These are the EUR bears hopeful target, especially those who have been €1.20 sellers.
Has Draghi got the “bottle” to implement QE?
The final result for this month’s highly touted ECB meeting could end up being an “uneasy” compromise on criteria, terms and magnitude of Eurozone government bond purchases. Draghi will not want to, nor can he afford to disappoint the market. Deflation, low inflation and market reputation are all at stake from his perspective. Many analysts have noted that the President may find himself “over compromising and under delivering.” Last week he managed to fuel market expectations by saying that the risk of the ECB failing to achieve its price stability is now higher than six-months ago. This has many expecting full blow QE immediately (January 22). However, Germany (and Greece) remains the ECB’s stumbling block. An immediate QE program assumed “no” German opposition. However, already this weekend some German officials have warned the ECB “not” to pour money into Greece and other struggling economies.
January Blues to take a miss
Over the next couple of weeks investors can expect Capital Markets to remain on tenterhooks, from equities, to credit to currencies. Global inflation readings, a Greek “tragedy,” German opposition to QE, U.S payrolls, a couple of Central Bank announcements, Russia’s plight, crude oil glut (WTI and Brent prices at five-year lows) and various other economic releases should be capable of keeping the market on it toes and the January blues at bay.
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