On Tuesday the 10th of April, trading on the euro closed up. There was a surge in market volatility as Nowotny, a member of the ECB’s governing council, gave a speech. He said in an interview that the ECB will end its bond-buying program this year and that the regulator could increase the deposit rate from -0.4% to -0.2% before making any changes to the key rate. The euro jumped in response to this to reach 1.2378.
The ECB, however, distanced itself from Nowotny’s comments, with a spokesman saying that “Governor Nowotny’s views are his own. They do not represent the view of the Governing Council”. On this development, the euro retreated to 1.2325.
The EURUSD pair closed the day at 1.2355 on the back of an increased appetite for risk as well as a largely weakened dollar. Comments from Chinese president Xi Jinping eased investor fears over US-Chinese trade relations.
Xi struck a conciliatory tone as he sought not to throw fuel on the trade dispute fire. He said that import tariffs may be reduced and that he would open China’s economy further to foreign investors.
Day’s news (GMT+3):
- 11:30 UK: industrial production (Feb), manufacturing production (Feb), trade balance (Feb).
- 14:00 UK: NIESR GDP estimate (Mar).
- 15:30 USA: CPI (Mar).
- 17:30 USA: EIA crude oil stocks change (6 Apr).
- 21:00 USA: FOMC minutes.
Fig 1. EURUSD hourly chart. Source: TradingView
I was wrong in my prediction yesterday that the euro would drop to 1.2275. The bullish trend started on the 6th of April was given a boost by Nowotny. The rate then returned to 1.2325 before recovering to 1.2361 on the back of a broadly weakened dollar.
Buyers were rebuffed at around the 135th degree. Taking the bearish divergence into account, as well as the fact that the FOMC is publishing its minutes this evening, I expect to see a rebound from the LB balance line. Given that the euro crosses are trading up, the bulls look set to reach a new high and form a double bearish divergence.
At 14:00 (EET), Mario Draghi is set to speak. Given Nowotny’s comments yesterday, we might see him expand on the subject of QE.
There’s another thing giving me cause for concern. The US is planning another strike in Syria under false pretenses. During a UN Security Council meeting, Russian permanent representative Vassily Nebenzia called on the West to avoid “hawkish rhetoric” and stop these reckless efforts that put global security at risk. There are Russian servicemen in the area in question and any forceful actions there could have serious consequences. As the US often gets everyone else involved in its escapades, it’s not clear how financial markets are going to react to this. Perhaps we should keep one eye on the dynamics of oil prices and safe haven assets.