Euro Holding on to 1.2154 against Dollar on Cautiously Upbeat ECB Draghi, Dollar Weakens as Yields Retreat

Euro recovers against Dollar after ECB president Mario Draghi tried to play down concerns over recent weak Eurozone data. But his usual cautiousness is so far capping Euro buying. On the other hand, Dollar’s rally also loses some steam, in particular against Yen as 10 year yield dips back below 3% handle. Despite upbeat job data from the US, the impact is offset by disappointing core durable goods orders too. Technically, the focus will stay on whether EUR/USD would break through 1.2154 key support to confirm medium term reversal, or it will break through 1.2244 minor resistance to indicate short term bottoming.

Quick update: EUR/USD breaks down around an hour after Draghi’s press conference ended. Updated technical outlook here.

ECB stands pat, Draghi cautiously plays down weak data

ECB left main refinancing rate unchanged at 0.00% as widely expected. Deposit facility rate is held at -0.40% and marginal lending facility rate at 0.25%. Also, the EUR 30B monthly asset purchase program will continue through end of September. Euro is lifted mildly following President Mario Draghi’s upbeat comments in the introductory statement. But no follow through buying is seen after his cautious remarks during the Q&A.

In particular, Draghi noted in the introductory statement that data since March “points towards some moderation” in growth. However, they are still “consistent with a solid and broad-based expansion of the euro area economy”. Also, Draghi added that “the underlying strength of the euro area economy continues to support our confidence that inflation will converge towards our inflation aim of below, but close to, 2% over the medium term.” But later, Draghi turned back into his cautious mode and said it’s important to determine if softer data temporary or permanent.

US jobless claims dropped to lowest since 1969, trade deficit narrowed sharply

Initial jobless claims dropped 24k to 209k in the weekended April 21, below expectation of 230k. That’s also the lowest level since 1969. Four week moving averaged dropped to 229.25k, down fro 231.50k. Continuing claims dropped 29k to 1.84m in the week ended April 14.

Trade deficit narrowed sharply by -10.3% to USD 68B in March, way lower than expectation of USD -74.8B. Headline durable goods orders jumped 2.6%, much higher than expectation of 1.4%. But that’s mainly due to a big increase in contracts for Boeing. Ex-transport orders was flat, below expectation of 0.40%.

SNB Q1 USD holding unchanged at 35%, EUR holding dropped 1%

SNB reported CHF 6.8B loss in Q1 of 2018.That includes CHF 7.0B loss on currency positions and CHF 0.2B loss on gold holdings. The losses were partly offset by CHF 0.5B gain in Swiss Franc positions, mainly from negative interest rates. Current allocations in the foreign exchange reserves were largely unchanged. USD holdings was at 35%, GBP holding at 7%, JPY holdings at 8% and CAD holdings at 3%. EUR holdings, on the other hand, dropped 1% to 39%.

German Gfk consumer climate dropped 0.1 to 10.8.

German Gfk consumer climate dropped to 10.8 in May, down 0.1 from 10.9, met expectations. GFK noted in the release that “the increasingly insecure state of geopolitics now also seems to be influencing the mood of consumers.” It pointed to “escalation of the Syrian crisis and the protectionist trade policies of the United States” that could affect Germany’s “previously excellent economic prospects.” Also, “increasing protectionism in international trade would hit Germany, as an export nation, resulting in employees fearing they may lose their jobs and again being more reluctant to buy.”

Elsewhere

UK BBA mortgage approvals dropped to 37.6k in March. CBI reported sales dropped improved to -2 in April. Australia import price index rose 2.1% qoq in Q1.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2135; (P) 1.2186 (R1) 1.2213; More….

Despite breaching 1.2154 key support to 1.2145, EUR/USD quickly recovered. Intraday bias is turned neutral first. But further decline is still expected as long as 1.2244 minor resistance holds. As noted before, decisive break of 1.2154 should confirm the bearish case of medium term reversal. In addition, the break of 100% projection of 1.2475 to 1.2214 from 1.2413 will indicate downside acceleration. In that case, EUR/USD should target 161.8% projection at 1.1991 next. However, break of 1.2244 will indicate strong support from 1.2154 and turn intraday bias back to the upside for 1.2413, to extend recent range trading.

In the bigger picture, key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 remains intact despite attempts to break. Firm break of 1.2154 support will confirm rejection by this fibonacci level. And in that case, a medium term top is at least formed at 1.2555. EUR/USD should then head back to 38.2% retracement of 1.0339 to 1.2555 at 1.1708 first. We’ll look at the structure and momentum of such decline before decision if it’s an impulsive or corrective move.

Economic Indicators Update