• USD gains ground on technical moves after the European Central Bank meetings
• Yen continues to be pressured at a 33 month low
• Commodity currencies lower on economic data
USD – The dollar gained ground against the euro and held close to yesterday’s levels on sterling and yen primarily on technical moves with cross currency pairs. Despite the bullish tone from the ECB, the dollar was able to rally on technical positioning as the market digested European central bank meetings. In other news, initial jobless claims came in at 366,000, slightly above the consensus of 360,000. The market will look towards Federal Reserve speeches later today and tomorrow from Bullard and Evans for further direction with the greenback. Also the market will look towards tomorrow’s trade balance figure, which is set to come in at $45.80B.
EUR – The European Central Bank (ECB) left rates on hold at 0.75 percent as expected. The ECB went on to say that they will monitor the impact of the strengthening euro, but said it was not a policy target. ECB chief Mario Draghi said the exchange rate was near its long-term average and that "the appreciation is, in a sense, a sign of return of confidence in the euro.” He went on to say, "the exchange rate is not a policy target, but it is important for growth and price stability and we certainly want to see whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned. "With the ECB’s balance sheet tightening due to banks paying back money borrowed last year, look for the euro to remain strong and push higher close to its 15-month peak of 1.3711.
GBP – Sterling pushed higher after the Bank of England (BOE) announced that they would keep rates on hold at 0.5 percent and after incoming Bank of England governor, side stepped any talk of quantitative easing. Carney struck a very balanced tone, avoiding hinting at any direction he would take with the UK’s monetary policy.
Expectations are that Carney will maintain the BoE's existing mandate of targeting inflation rather than growth. Look for sterling to remain under pressure as macro fundamentals continue to pressure the UK’s economy and as the UK’s AAA credit rating remains in jeopardy.
JPY – The Japanese yen remains at a 33 month low vs. the US Dollar, just under 94 with an intraday low at 93.91. Prime Minister Abe’s continued effort to pressure the BOJ to implement aggressive monetary easing to end economic stagnation and prolonged deflation continues to drive yen weakness. However, analysts say a decision to hold off on expanding stimulus may be decided during the BOJ rate review meeting on Feb. 13 and 14.
Commodity Currencies – The Canadian dollar is lower after the value of building permits posted its biggest two-month drop in at least 24 years, falling 11.2% in December following a 14.5% plunge in November, statistics said on Thursday. Meanwhile, prices of new homes in Canada rose by 0.2% in December following a 0.1% rise in November. The BoC has long expressed concerns the housing market might overheat and current reports reflect the Government's tighter mortgage rules implemented back in July 2012. The Australian dollar is weaker despite a slightly higher employment reading and a steady jobless claim. Data from the Australian Bureau of Statistics showed employment rose by 10,400 in January while the jobless rate held steady at 5.4%, modestly beating market expectations and countering other recent indicators of softness in the economy. To that point, the RBA is holding to the expectation that the unemployment rate will slowly rise in coming months. Economists would suggest that a move toward 6% would greatly add to the case for further cuts in interest rates.
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