Sample Category Title

Draghi stimulus hint lift European stocks

Mario Draghi has been back on the airwaves this morning doing what he does best.

The ECB President – for a few more months at least – has become known for his ability to talk down the euro even during periods of tightening and this morning, he’s delivered in true Draghi fashion once again.

His claims that the asset purchase program still has considerable room and interest rates could fall further did not fall on deaf ears, with the euro shedding a third of one percent against the dollar (around 50 pips) and stock markets which had opened relatively flat moving healthily into the green. All in a morning’s work for the man so adept at this kind of thing.

EURUSD Daily Chart

The question now is whether we’re now seeing evidence of the downtrend continuing or whether the breakout, no matter how brief, was a sign of it being exhausted. As you can see on the 4-hour chart below, we’ve already seen a break of the 61.8 fib level which may suggest the downtrend remains in force but after such a downturn, it wouldn’t be ridiculous to suggest an early reversal correction may hit the 78.6 fib, around 1.1150. Signs of trend exhaustion here could be interesting.

EURUSD 4-Hour Chart

There were no hints at when policy loosening will come but the admission that these options were discussed at the last meeting and will be discussed in future suggest we may not be far away. That was enough to send bond yield tumbling, with the German 10-year hitting a record low, continuing the trend its been on since early October.

It wasn’t too long ago that we were facing the prospect of rate hikes to mark the end of Draghi’s tenure but clearly the era of unconventional stimulus is not behind us after all.

Yesterday, the EUR/USD currency pair tried to surpass the resistance level formed by the 55-hour SMA. During Tuesday's morning, the pair dropped to support level—the monthly PP at 1.1181.

If the given support level holds, it is expected, that a reversal north could occur in the nearest future. Note, that the exchange rate has to surpass the Fibonacci 38.20% retracement at 1.1200. Also, it is unlikely, that the Euro could exceed the 1.1230 mark due to the given moving average.

If the given support does not hold, it is likely, that the rate could continue to sharp losses. In this case, the pair could decline to the support level formed by the weekly S1 at the 1.1162 mark.

During Monday, the GBP/USD exchange rate reached the lower boundary of the short-term descending channel at 1.2528. During today's morning, the rate was testing the given line.

From a theoretical point of view, it is expected, that a reversal north could occur in the nearest future. But it is unlikely, that, the British Pound could jump higher than 1.2587 due to the resistance of the 55-hour SMA. On the other hand, the currency pair could trade sideways, trying to breach the given channel.

However, if the given channel does not hold, it is likely, that a breakout south could occur within the following trading hours. A potential downside target is the 2018/2019 minimum at 1.2488.

During the previous trading session, the USD/JPY exchange rate plummeted to the lower boundary of the short-term ascending channel at 108.30. During today's morning, the rate breached the given channel south.

Note, that the currency pair is supported by the weekly S1 at the 108.22. Thus, the pair could trade sideways, trying to surpass the given support level.

It is unlikely, that the rate could reverse north, and the US Dollar could exceed the 108.44/108.51 range to the resistance cluster formed by the 55-, 100– and 200-hour SMAs, as well the weekly PP and the Fibo 38.20%.

If the given support does not hold, it is expected, that some downside potential could prevail in the market.

Yesterday, the XAU/USD exchange rate traded sideways between the 55– and 200-hour SMAs, located at 1,343.30 and 1,335.93 respectively. During Tuesday's morning, the rate increased to the 1,345.00 level.

Given, that gold is supported by the given moving averages, as well the 100-hour SMA and the monthly R2, it is likely, that bulls could prevail in the market. The price for gold could target the psychological level at 1,355.00.

From the other hand, the exchange rate could trade sideways between the psychological levels, located at 1,345.00 and 1,350.00 respectively.

It is unlikely, that some downside potential could prevail in the market due to the given support.

The British Pound appreciated about 1.08% in value against the Australian Dollar during last week's trading sessions. The currency pair tested the upper boundary of a descending channel pattern at 1.8380.

As for the near future, it is likely that the GBP/AUD exchange rate will continue its upward swing. A potential breakout through the upper boundary of the descending channel pattern during the following trading sessions.

If this breakout occurs, a surge towards a resistance level formed by the weekly R2 at 1.8513 could follow in the short-term.

The GBP/CAD currency pair traded sideways during last week's trading sessions. The 50-hour simple moving average provided resistance for the exchange rate at 1.6965.

The British Pound was trading near the upper boundary of a descending channel pattern at 1.6807 and could be set for a breakout.

If the breakout occurs, a surge towards the weekly R2 at 1.7055 could be expected during the following trading sessions.

On the other hand, if the descending channel holds, the currency exchange rate will continue its downward movement in the shorter term.

The Euro fell sharply (making the biggest hourly drop in 1 1/2 month) and hit new two-week lows as comments from ECB President Draghi disappointed traders.

Draghi pointed to weakness in coming quarters, signaling that fresh stimulus would be required if inflation doesn't return to the target.

Renewed probe through key supports at 1.1208/04 (daily cloud base/Fibo 61.8% of 1.1116/1.1347) is generating bearish signal which would require confirmation on daily close below these levels.

Massive miss of German ZEW (Jun -21.1 vs -5.7 f/c) and weak EU inflation, added to strong bearish tone, proving negative stance of ECB's Draghi. The pair hit new low at 1.1181 (the lowest since 3 Jun) and eyes Fibo support at 1.1170 (76.4% of 1.1116/1.1347), with further weakness on bearish sentiment not ruled out. Daily stochastic continues to head south in deep oversold territory and generates initial warning of some adjustment. Broken cloud base now reverted to strong resistance which should keep the upside protected.

Res: 1.1200, 1.1208, 1.1222, 1.1242
Sup: 1.1181, 1.1170, 1.1160, 1.1134

Notes/Observations

• Dovish central bank rhetoric ahead of Wed's Fed meeting.
• RBA's June minutes signaled further central-bank policy easing ahead
• BOK May Minutes saw member talked about need for cut
• ECB's Draghi opens Sintra forum on a dovish note; says all options were raised and discussed at the last policy meeting with interest-rate cuts and more QE are part of its arsenal.
• German ZEW Survey mixed overall but Expectations Survey did registered a big miss
• Focus on UK 2nd round ballot in Conservative Party leadership race

Asia:

• RBA Jun Minutes noted that members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead. It noted that lower interest rates were not the only policy option
• April US TIC data showed that China Total holding of US Treasuries at a 2-year low ($1.113T v $1.12T prior)
• BOJ Gov Kuroda stated that overseas economic developments would be discussed at upcoming rate review this week. Uncertainty over global economic outlook was high with risks on downside for global economy. BOJ's Yield Control (YCC) was creating extremely loose monetary conditions for households and companies

Europe/Mideast:

• Italy budget dispute with EU said to be centered on 2020 targets. Italy Treasury said to forecast 2020 deficit at about 1.8% of GDP and the ruling coalition parties (League and 5-Star) in Italy want it higher
• Italy Dep PM Salvini (League) said to be seeking a pretext to break up government and go to early elections
• 2nd round of Conservative (Tory) leadership voting on Tuesday (Jun 18th); the candidates need at least 33 votes to go into next round
• Chancellor of the Exchequer Hammond (Fin Min) said to be prepared to resign over PM May spending plans

Energy:

• Iran energy minister Zanganeh said to have told Russia Energy Mon Novak that Iran could not meet with OPEC+ within the July 3-4 time frame, but July 12th would be acceptable. Noted that changing that date from June 25-26 required OPEC consensus

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.7% at 381.2, FTSE +0.4% at 7388, DAX +0.8% at 12180, CAC-40 +1.1% at 5449, IBEX-35 +0.4% at 9163, FTSE MIB +1% at 20822, SMI +0.5% at 9918, S&P 500 Futures +0.3%]
• Market Focal Points/Key Themes: Equities European Indices trade higher across the board following a generally higher session is Asia and stronger US Index futures, with a dovish Draghi speech helping Indices higher and putting pressure on the Euro. On the corporate front shares of Danish traded Ambu is a notable declines after cutting its full year outlook, with Siltronic declining over 10% after cutting its outlook. Kapsch TrafficCom and Safestore also decline on earnings. Telecom Plus,and Frontier Developments are among the gainrs following earnings and trading updates. On the M&A front shares of Tieto rise following a merger with Evry; Interestrust gains after the acquisition of Viteos for $330M. In other news shares of Infineon and Sound Energy decline following respective placings. Looking ahead notable earners include Winnebago Industries and Barnes and Nobel.
• Consumer discretionary: Intertrust [INTER.NL] +5% (Acquisition)
• Energy: Nordex AG [NDX1.DE] -1% (US order), Sound Energy [SOU.UK] -7% (placing)
• Healthcare: Ambu [AMBUB.DK] -17% (Cuts outlook)
• Technology: Wirecard [WDI.DE] +2.8% (AGM comments), Infineon Technologies [IFX.DE] +4% (Capital increase), Siltronic [WAF.DE] -14% (cut guidance), Tieto [TIETO.FI] +6% (merger with Evry)

Speakers

• ECB's Draghi opened the ECB forum in Sintra by reiterated that the central bank was committed to price stability objective; He stressed that if the outlook did not improve then additional stimulus would be needed and that more rate cuts were part of tool kit. All options were raised and discussed at the last policy meeting and that interest-rate cuts and more QE were part of its arsenal.
• Sweden Central Bank (Riksbank) May Business Survey: Swedish companies still saw good economic activity but were expecting a weakening in the period ahead
• Italy Fin Min Tria reiterated govt stance that 2019 budget deficit to GDP ratio between 2.1-2.2% but numbers to be better than forecast. Confident that would reach an agreement with EU. Hoped EU growth would create space for more spending but added Italy did not want to create a problem in Europe. Stressed that the macroeconomic situation in Italy was not very good.
• German IFO institute trimmed 2020 GDP growth forecast from 1.8% to 1.7% while maintaining the 2019 GDP forecast at 0.6%
• German ZEW Economists: Economic outlook for Germany was similarly negative as it was in the last quarter of 2018
• Hong Kong Chief Executive Lam to apologize for mishandling of extradition bill (2nd apology as the first was a written reply. The 2nd would be an ‘in person apology')
• Bank of Korea (BOK) May Minutes had one member noting that external risks had risen while another unidentified member saw the case for rate cut due to downside risks
• Japan Cabinet Office (Govt) Jun Monthly Economic Report: Maintained its overall assessment that domestic economy was recovering at a moderate pace while exports and production remained weak
• Iran President Rouhani stated that his country would not wage war against any nation
• Saudi Arabia said to push for oil production cut in H2
• Russia Energy Min Novak stated that Russia was ready to discuss July 10-12th as OPEC+ meeting dates

Currencies/Fixed Income

• USD: The US Dollar traded higher mostly due to a risk off scenario where tension between the US and Iran continues to heat up. We could see further highs from the US dollar as weakness from Euro area currencies continue to weaken. The US dollar index futures trade around 97.22 and we could see current highs broken above 97.50. Dovish central bank rhetoric also aiding the greenback (RBA, BOK and ECB all had dovish tones in the session)
• EUR: The Euro was pushed lower today breaking the 1.12 handle after ECB head Mario Draghi released dovish comments and hinted of a return of QE. This also saw the Bund futures reach their highest level 172.44 which resulted in a record low of -0.3%. EUR/USD below the 1.12 level with dealing eyeing the next level to the downside in the 1.1100 region.
• GBP: The cable saw another day lower as it traded near the 1.25 handle making today the 5th day the cable traded lower. We have tomorrow's CPI figures that could continue the current volatile state. To the upside we have the level of 1.2750 region and to the downside we have the yearly low of 1.2420.

Economic Data

• (EU) Euro Zone May EU27 New Car Registrations: +0.1% v -0.4% prior (1st rise in 9 months)
• (TR) Turkey Apr Industrial Production M/M: -1.0% v +0.1%e; Y/Y: -4.0% v -2.2%e
• (AT) Austria May CPI M/M: 0.2% v 0.1% prior; Y/Y: 1.7% v 1.7% prior
• (ES) Spain Q1 labour Costs Y/Y: 2.1% v 0.9% prior
• (DE) Germany Jun ZEW Current Situation Survey: 7.8 v 6.1e; Expectations Survey: -21.1 v -5.8e
• (EU) Euro Zone Jun Expectations Survey: -20.2 v -1.6 prior
• (EU) Euro Zone May Final CPI Y/Y: 1.2% v 1.2%e; CPI Core Y/Y: 0.8% v 0.8%e; CPI M/M: 0.1% v 0.2%e
• (EU) Euro Zone Apr Trade Balance (Seasonally Adj): €15.3B v €17.0Be; Trade Balance NSA (unadj): €15.7B v €22.5B prior

Fixed Income Issuance

• (ID) Indonesia sold total IDR24.0T vs. IDR15.0T target in 3-month and 12-month Bills and 5-year, 10-year, 15-year, 20-year, and 30-year Bonds
• (ES) Spain Debt Agency (Tesoro) sold total €1.39B vs. €1.0-2.0B indicated range in 3-month and 9-month bills
• (CH) Switzerland sold CHF409M in 3-month bills; Avg Yield: -0.798% v -0.790% prior

Looking Ahead

• 05:30 (UK) Weekly John Lewis LFL Sales data
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
• 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
• 05:30 (UK) DMO to sell £2.75B in new conventional 0.875% Oct 2029 Gilts
• 06:45 (US) Daily Libor Fixing
• 07:00 (BR) Brazil Jun IGP-M Inflation (2nd Preview): No est v 0.6% prior
• 07:30 (IR) ECB's Lane (Ireland)
• 07:45 (US) Weekly Chain Stores Sales data
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (RU) Russia announces upcoming OFZ Bond issuance
• 08:30 (US) May Housing Starts: 1.235Me v 1.235M prior; Building Permits: 1.290Me v 1.290M prior (revised from 1.296M)
• 08:30 (CA) Canada Apr Manufacturing Sales M/M: 0.4%e v 2.1% prior
• 08:55 (US) Weekly Redbook LFL Sales data
• 09:00 (EU) Weekly ECB Forex Reserves
• 10:00 (MX) Mexico Weekly International Reserve data
• 10:00 (EU) ECB chief Draghi with BOE Gov Carney at ECB forum in Sintra
• 11:30 (US) Treasury to sell 52-week bills
• 16:30 (US) Weekly API Oil Inventories

Draghi stimulus hint lift European stocks

Mario Draghi has been back on the airwaves this morning doing what he does best. The ECB President - for a few more months at least - has become known for his ability to talk down the euro even during periods of tightening and this morning, he's delivered in true Draghi fashion once again. His claims that the asset purchase program still has considerable room and interest rates could fall further did not fall on deaf ears, with the euro shedding a third of one percent against the dollar (around 50 pips) and stock markets which had opened relatively flat moving healthily into the green. All in a morning's work for the man so adept at this kind of thing.

There were no hints at when policy loosening will come but the admission that these options were discussed at the last meeting and will be discussed in future suggest we may not be far away. That was enough to send bond yield tumbling, with the German 10-year hitting a record low, continuing the trend its been on since early October. It wasn't too long ago that we were facing the prospect of rate hikes to mark the end of Draghi's tenure but clearly the era of unconventional stimulus is not behind us after all.

GBP lower ahead of more leadership votes

The Conservative party leadership election has not been kind to sterling so far, with contenders being forced to paint themselves as the bigger Brexiteer and the more willing to leave without a deal, so as to compete with the front-runner Boris Johnson and stand a chance of winning over the Tory membership, who's views on these issues are well known. Unfortunately, these views don't sit well economically and therefore with the currency which is why the decline has been quite consistent.

Another casualty will fall following the race today and if that is a remain-voter and/or a proponent of delaying exit day rather than embracing no-deal, it's unlikely to sit well with the currency. It will also make for an interesting debate this evening, when the remaining contenders will face off, this time in the company of Johnson who will have a chance to defend himself.

Fed meeting remains at the forefront of traders minds

Draghi may have provided a handy distraction this morning and the UK leadership election may well continue to do the same but we shouldn't kid ourselves, this week is still all about the Fed. Tomorrow's decision may well shape how markets trade ahead of next week's G20, after which we should have a much better idea of where trade talks between the world's two largest economies stand.

The Fed has a tough job on its hands, pre-empting those talks and coming up with economic projections and a dot plot, not to mention living up to some very dovish market expectations. The chance of the Fed failing to do so strike me as being quite high and perhaps the apprehension we've seen so far this week in the markets are a reflection of that.