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Euro Vulnerable to Deeper Losses on Draghi Comments, PMI Data

Euro Vulnerable to Deeper Losses on Draghi Comments, PMI Data

Ilya Spivak,

Talking Points:

  • Euro May Extend Decline on Dovish Draghi Comments, Soft PMI Data
  • Aussie and NZ Dollars Rise, Euro and Yen Decline as Risk Firms in Asia
  • Confirm Trend Direction and Spot Critical Reversals with DailyFX SSI

The sentiment-linked Australian and New Zealand Dollars continued to push higher after scoring dramatic gains in the preceding 24 hours, rising alongside Asian stock prices as risk appetite continued to recover around the financial markets. The anti-risk Euro and Japanese Yen traded lower, with the single currency underperforming in the aftermath of yesterday’s dovish ECB policy announcement (as expected).

Eurozone event risk remains in the spotlight through the end of the trading week. ECB President Mario Draghi is set to speak at the World Economic Forum in Davos, Switzerland. Traders will look for the central bank chief to expound on yesterday’s dovish commentary, where he hinted that an expansion of stimulus measures may be unveiled as soon as March.

Most critically, investors will want to know if the ECB is prepared to deliver more accommodation in the immediate term. December’s move to extend the length of the QE program added to the sum total of asset purchases but didn’t change the size of monthly outlays. Meanwhile, the shallow cut of the deposit rate fell in line with what investors had already priced prior to the policy meeting. On balance, this meant that present-day stimulus provision was left static, leaving investors disappointed.

On balance, this means that for any further policy support to be seen as adequately potent by investors, the ECB will have to actually increase the amount of easing on offer now versus in the future. Comments hinting at such a possibility from Mr Draghi are likely to weigh on the Euro and may amplify the recovery in risk appetite. Rhetoric pointing to another modest offering as the next policy step stands to yield the opposite results.

The preliminary set of January’s Eurozone PMI figures is likewise on tap. The region-wide composite measure is expected to show that manufacturing- and service-sector activity growth slowed for the first in four months in December. Needless to say, sagging economic growth compounds downward pressure on inflation and makes it harder for the ECB to deliver on its mandate, amplifying the need for a more aggressive stimulus effort. As such, a soft result will probably hurt the single currency, whereas an upside surprise may help cap recent losses.

What is the most common mistake FX traders make? Find out here.

Asia Session

GMTCCYEVENTACTEXPPREV
01:45CNYMNI Business Indicator (JAN)52.3-52.7
02:00JPYNikkei Japan PMI Mfg (JAN P)52.452.852.6

European Session

GMTCCYEVENTEXPPREVIMPACT
07:45EURECB President Mario Draghi Speaks in Davos --High
08:00EURMarkit France Mfg PMI (JAN P)51.351.4Low
08:00EURMarkit France Services PMI (JAN P)50.149.8Low
08:00EURMarkit France Composite PMI (JAN P)50.350.1Low
08:30EURMarkit/BME Germany Mfg PMI (JAN P)53.053.2Medium
08:30EURMarkit Germany Services PMI (JAN P)55.556.0Medium
08:30EURMarkit/BME Germany Composite PMI (JAN P)55.155.5Medium
09:00EURECB Survey of Professional Forecasters --Medium
09:00EURMarkit Eurozone Mfg PMI (JAN P)53.053.2Medium
09:00EURMarkit Eurozone Services PMI (JAN P)54.254.2Medium
09:00EURMarkit Eurozone Composite PMI (JAN P)54.154.3Medium
09:30GBPRetail Sales Ex Auto Fuel (MoM) (DEC)-0.3%1.7%Medium
09:30GBPRetail Sales Ex Auto Fuel (YoY) (DEC)3.5%3.9%Medium
09:30GBPRetail Sales Inc Auto Fuel (MoM) (DEC)-0.3%1.7%Medium
09:30GBPRetail Sales Inc Auto Fuel (YoY) (DEC)4.4%5.0%Medium
09:30GBPPublic Finances (PSNCR) (DEC)-5.4BLow
09:30GBPCentral Government NCR (DEC)-7.7BLow
09:30GBPPublic Sector Net Borrowing (DEC)10.0B13.6BLow
09:30GBPPSNB ex Banking Groups (DEC)10.5B14.2BLow
10:00EUREuro Area 3Q Government Debt --Low
12:00GBPBOE's Cunliffe Speaks at Bruegel in Brussels --Low
12:00EURECB’s Coeure Speaks in Davos --Medium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EUR/USD1.05721.07151.07941.08581.09371.10011.1144
GBP/USD1.38451.40141.41181.41831.42871.43521.4521

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

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