Mario Draghi will preach his usual sermon of persistent risks to the growth outlook today. Like most analysts, I don't expect any changes in the ECB's rhetoric. Draghi & Co. will likely resist changes to their outlook for policy rates or the APP despite the recent uptick in inflation.
With Yellen signalling "a few" rate hikes per year through 2019, this is the ECB's chance to keep the EUR at the current low or even lower levels vis-à-vis the USD. I'm not paying a lot of attention to Trump's statement that the USD was too strong, by the way, because the dollar's path will be determined by the Fed, not by the tweeting POTUS.
Open positions as of 19/01/2017 9:00am CET: Flat
Realized YTD return: +0.7% from 2 trades
Wednesday turned out to have been yet another boring day for EURUSD in a way too long succession of uneventful trading days. After last week's price action which sent the single currency roughly 2.5 big figs lower versus the US dollar, and which must surely have left traders squeal with glee in view of a cautious volatility comeback, EURUSD went pretty much back into sleep during European trading hours today.
With 1m implied vol still not much higher than 5%, intraday price ranges remain relatively unfit for momentum trading for the time being.
However, investors looking a tad further ahead may see a trend emerging: Downward pressure on the EUR, which started with Draghi's comments on Thursday, increased with yesterday's dismal German ZEW release as well as press reports that the German Bundesbank may finally be at one with the ECB regarding the possibility of rate cuts in June. Comments by Buba President Weidmann suggest that Germany's central bank may support ECB action "if needed", but naturally Weidmann also said the CBs were waiting for additional economic data releases before arriving at any conclusions.
Today the EUR made a few attempts to break through the $1.37 support level. EURUSD has already left its uptrend from February and it may drop below the longer-term trend line originating from a July 2012 low shortly. This more important trend coincides closely with the aforementioned $1.37 support level, making further down moves to $1.367 likely in case of a sustained break-out. MACD is also still constructive for such a scenario, but intraday vol may well deteriorate again in the absence of more CB news or data surprises.
Also, as said earlier this week, keep in mind that the closer we get to June the higher the risk of sudden EURUSD up ticks due to policy surprises if the euro continues to steadily devalue versus the major CCYs in the meantime, as the ECB might then no longer have any pressing need to actually follow through on Draghi's announcement. But with FX volatility this low traders are perhaps likely to completely fall asleep anyway, so why care at all? #BuyVol