• If there was ever a day that highlighted the different trajectories of Europe and the US, yesterday was that day. The ECB rate decision came in unchanged on Thursday and the accompanying press conference offered few surprises, but what it did do was to underline that the the European Central Bank is firmly in ‘accommodation’ mode. Interest rates are more likely to go down than rise next, while ECB President Draghi is keeping the door open to further measures including an asset backed security purchase program.
• Although a rate hike remains some way off for the US, the Fed is already tapering its own security purchase program, paving the way for rates to life off their record lows at some point in the future. Underling this trajectory, US non-farm payrolls came in well above expectations at +288k versus expectations of +212k. In addition, the unemployment rate dropped to 6.1% against expectations for these to come in unchanged.
• To highlight the challenges facing Europe – these stellar US figures followed Spanish services PMI that dropped significantly more than expected.
• This morning, the euro is under further pressure with the main euro pairs all heading lower.
• By contrast, the Australian dollar is gaining back some of the ground lost in the two day sell off.
• The USD/JPY is also heading back lower as the dollar index backs off.
• Today is Independence Day in the US with volumes expected to be lower.
Trade Idea:
• The euro has been in a gradual decline since the start of May and this roughly coincides with the dollar’s strength over the same period. Mid to late June saw a reversal of this trend, but today’s economic data has only gone to underline where the medium term path lies for the EUR/USD. With the ECB still in critical care mode and the US up on its feet, there could be more downside to come for the EUR/USD over the next few months.
US and Europe In Different Orbits
Morning Report: 08.45 London
• If there was ever a day that highlighted the different trajectories of Europe and the US, yesterday was that day. The ECB rate decision came in unchanged on Thursday and the accompanying press conference offered few surprises, but what it did do was to underline that the the European Central Bank is firmly in ‘accommodation’ mode. Interest rates are more likely to go down than rise next, while ECB President Draghi is keeping the door open to further measures including an asset backed security purchase program.
• Although a rate hike remains some way off for the US, the Fed is already tapering its own security purchase program, paving the way for rates to life off their record lows at some point in the future. Underling this trajectory, US non-farm payrolls came in well above expectations at +288k versus expectations of +212k. In addition, the unemployment rate dropped to 6.1% against expectations for these to come in unchanged.
• To highlight the challenges facing Europe – these stellar US figures followed Spanish services PMI that dropped significantly more than expected.
• This morning, the euro is under further pressure with the main euro pairs all heading lower.
• By contrast, the Australian dollar is gaining back some of the ground lost in the two day sell off.
• The USD/JPY is also heading back lower as the dollar index backs off.
Coming up today:
• Today is Independence Day in the US with volumes expected to be lower.
Trade Idea:
• The euro has been in a gradual decline since the start of May and this roughly coincides with the dollar’s strength over the same period. Mid to late June saw a reversal of this trend, but today’s economic data has only gone to underline where the medium term path lies for the EUR/USD. With the ECB still in critical care mode and the US up on its feet, there could be more downside to come for the EUR/USD over the next few months.
A good way to play this a LOWER trade predicting that the EUR/USD will close below 1.3600 on the 28th of August 2014 for a potential return of 113%.
This is presented as an idea to stimulate fixed odds financial betting ideas and is not financial advice.
Summary:
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