EU Morning Report- Euro edges lower as investors’ focus turns on the BoE

By @ibtimes on

Euro edges lower as investors' focus turns on the BoE

  • The Fed Chairman Ben Bernanke testimony weighed on the dollar on Wednesday after he gave no indication of an end to the Fed's bond purchasing program. He emphasized on the improvement on the US jobs sector but said that it will take years before the US unemployment reaches healthy levels. Bernanke also commented on inflation saying that it is still at low levels further lowering expectations of higher interest rates. Further weighing on the dollar was a successful bond auction that pushed the US bond yields lower and gave the euro a yield advantage.
  • The euro benefited from the fall in US bond yields yesterday climbing as high as 1.3743 versus the dollar. Today the euro surrendered some of its gains after the hawkish ECB policymaker Axel Weber, the German central bank chief, announced he will not be a candidate in the race of replacing ECB president Jean-Claude Trichet. Investors, who slowly abandon the view of a rate hike in Europe, pushed the single currency to 1.3676 against the dollar today.
  • The currency markets focus on today's Bank of England (BoE) interest rate decision. Speculators expect the rate to remain unchanged at 0.5% but investors believe the BoE will be the first to lift the rates. The UK economy faces high inflation pressures and rates must be raised sooner than later. Expectations of a rate hike in the near future appear to be priced in the markets pushing the sterling as high as 1.6276 versus the dollar. Today the pair trades in a tight range around 1.6090.
  • The Australian dollar dropped against the US dollar today weighed by mixed employment data. The Australian Bureau of Statistics showed the country's unemployment rate unchanged at 5% and the change in the number of employed people increased by 24K well above expectations. But data also showed full time employment declined by 8K lowering the chances of a rate hike in the near future. The Aussie which started a rally versus the dollar on February managed to break above parity level but failed to break above 1.02. The mixed jobs data dragged the pair down to 1.0054 from 1.0188. Investors now focus on Reserve Bank of Australia Governor Glenn Stevens who testifies on Friday and the Aussie might find support on his possibly hawkish comments.

Currency to watch out for: EURUSD & USDJPY

  • § The EURUSD pivot point is at 1.3650 with a preference to enter into Long positions at 1.3660
  • § The USDJPY pivot point is at 82.30 with a preference to enter Long positions at 82.35              

Today's calendar and market movers:

  • § UK Interest Rate Decision is forecasted to keep interest rates unchanged at 0.5%
  • § US Initial Jobless Claims is forecasted to fall to 411K

Equity Markets:

US equities were mixed on Wednesday with the S&P500 trading down -0.28% and the DJIA unchanged. The European bourses are negative with the FTSE trading down -0.64%, the DAX trading down -0.03% and the CAC down -0.43%. The NIKKEI and the HSI at the time of writing are trading down 0.11% and down -1.15% respectively.

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