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Euro May Rise on Neutral ECB, Pound at Risk on Carney Comments

By , Currency Strategist
07 February 2013 06:05 GMT

The Euro may rise as the ECB withholds dovish rhetoric at the bank’s policy meeting. The Pound is at risk as future BOE chief Mark Carney hints at further easing ahead.

Talking Points

  • Euro May Rise as ECB’s Draghi Holds Back Dovish Commentary
  • British Pound May Fall as Carney Hints at Renewed Easing Ahead
  • EU Leaders Summit May Fuel Debt Crisis Stress on Budget Impasse

The economic calendar heats up in European trading hours. The European Central Bank will deliver its monthly policy announcement. Mario Draghi and company are not expected to offer any changes to the current framework this time around but the markets appear see the possibility for some verbal intervention to emerge in the press conference following the rate decision to talk down the recently buoyant Euro. The ECB President seems unlikely to overstep the bank’s mandate and dip into exchange rate policy however. Indeed, a strong currency and its negative implications for exports and broader economic growth ultimately falls outside of the ECB’s strict focus on price stability alone. Still, expectant markets primed for a dovish turn in rhetoric may respond to its absence as de-facto hawkish and bid up the single currency.

Meanwhile, EU Leaders will gather for a two-day summit in Brussels to hash out a compromise on a seven-year budget for the regional bloc. Familiar UK-French frictions have re-emerged and may have passed with little fanfare if not for the Eurozone debt crisis. Indeed, passing a budget is critical to secure funding for ongoing bailout efforts and traders may interpret continued deadlock as negative for sovereign risk, particularly in the context of recent jitters elsewhere on the political front. A clear-cut reaction may have to wait until after the ECB rate decision however, with traders unlikely to commit to a directional bias until after Draghi remarks have had their chance to filter into exchange rates.

The Bank of England is likewise due to deliver an update on its monetary stance. The policy mix is likely to remain unchanged here as well, shifting the focus to BOE Governor-Designate Mark Carney instead as he answers questions before the Treasury Select Committee. Lawmakers are expected to grill the incoming central bank chief about the monetary policy tools he is likely to use to help the UK escape a looming triple-dip recession. The current head of the Bank of Canada has stuck a strongly dovish tone in prior commentary; more of the same this time around is likely to weigh on British Pound and we continue to hold short GBPUSD.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Participation Rate (QoQ) (4Q)

67.2%

68.4%

68.4%

21:45

NZD

Employment Change (QoQ) (4Q)

-1.0%

0.4%

-0.4%

21:45

NZD

Unemployment Rate (4Q)

6.90%

7.10%

7.3%

21:45

NZD

Employment Change (YoY) (4Q)

-1.4%

0.2%

0.%

22:30

AUD

AiG Performance of Construction Index (JAN)

36.2

-

38.8

23:50

JPY

Official Reserve Assets ($) (JAN)

1267.3B

-

1268.1B

23:50

JPY

Machine Orders (MoM) (DEC)

2.8%

-0.8%

3.9%

23:50

JPY

Machine Orders (YoY) (DEC)

-3.4%

-3.9%

0.3%

0:30

AUD

NAB Business Confidence (4Q)

-5

-

-4 (R-)

0:30

AUD

Employment Change (JAN)

10.4K

6.0K

-3.8K (R+)

0:30

AUD

Unemployment Rate (JAN)

5.4%

5.5%

5.4%

0:30

AUD

Participation Rate (JAN)

65.0%

65.1%

65.1%

0:30

AUD

Full Time Employment Change (JAN)

-9.8K

-

-13.9K (R-)

0:30

AUD

Part Time Employment Change (JAN)

20.2K

-

10K (R+)

5:00

JPY

Leading Index (DEC P)

93.4

93.6

92.0 (R-)

5:00

JPY

Coincident Index (DEC P)

92.7

92.6

90.2

5:30

AUD

Foreign Reserves (A$) (JAN)

-

47.3B

Euro Session:

GMT

CCY

EVENT

EXP

PREV

IMPACT

-

EUR

EU Leaders Begin 2-Day Summit in Brussels

-

-

High

6:45

CHF

SECO Consumer Confidence (JAN)

-12

-17

Medium

7:45

EUR

French Trade Balance (€) (DEC)

-4150M

-4334M

Low

8:00

CHF

Foreign Currency Reserves (JAN)

428.5B

427.2B

Low

9:30

GBP

Industrial Production (MoM) (DEC)

0.9%

0.3%

Medium

9:30

GBP

Industrial Production (YoY) (DEC)

-2.0%

-2.4%

Medium

9:30

GBP

Manufacturing Production (MoM) (DEC)

0.8%

-0.3%

Low

9:30

GBP

Manufacturing Production (YoY) (DEC)

-2.4%

-2.1%

Low

9:30

GBP

Visible Trade Balance (£) (DEC)

-8900

-9164

Medium

9:30

GBP

Trade Balance Non EU (£) (DEC)

-4200

-4519

Low

9:30

GBP

Total Trade Balance (£) (DEC)

-3200

-3466

Low

9:45

GBP

BOE Gov-Designate Carney at Treasury Committee Q&A

-

-

High

11:00

EUR

German Industrial Production (MoM) (DEC)

0.2%

0.2%

Medium

11:00

EUR

German Industrial Production (YoY) (DEC)

-0.5%

-2.9%

Medium

12:00

GBP

Bank of England Rate Decision

0.5%

0.5%

High

12:00

GBP

BOE Asset Purchase Target

375B

375B

High

12:45

EUR

European Central Bank Rate Decision

0.75%

0.75%

High

13:30

EUR

ECB President Draghi Holds Press Conference

-

-

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3479

1.3581

GBPUSD

1.5637

1.5703

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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07 February 2013 06:05 GMT