Financial markets look set to end the week on a slightly cautious note after some mixed signals from the European Central Bank in its monetary policy press conference and some downbeat economic data from the US in the form of the Philly Fed Business index. Pointing towards the prospect of renewed negative inflation in the Eurozone and interest rates at or below current levels for an extended period of time, but also fairly settled with the policy implementation, Mario Draghi drove some volatility without any real direction on markets. There was not huge amount discussed that the market did not already know, but the rather dovish tone of Marion Draghi has ensured that once the volatility of the press conference settled down, the euro may start to drop again. US markets closed slightly lower with a negative slant on some of the corporate earnings and a miss on the Philly Fed Business index. Asian markets have also been rather subdued and weaker overnight, although the Nikkei was up 1.2% as the yen weakened again. European markets are opening on the back foot to end the week.
In forex markets we are seeing more of a positive tone to trading, with the yen the big underperformer, whilst the riskier currencies are all performing better again, with the Aussie and the Canadian loonie the standouts. The euro is trading flat against the dollar as trading settles down in the wake of the ECB. Gold and silver have settled following on from yesterday’s sharp intraday declines, whilst the oil price is once again showing the way higher with gains of over a percent.
Traders will be looking out for the Eurozone flash manufacturing PMIs this morning which culminates in the area wide data at 0900BST which is expected to improve very slightly to 51.8 (from 51.6 last month). The US flash manufacturing is at 1445BST ad is expected to also show a marginal improvement to 51.9 (from 51.5). Aside from that the Canadian CPI reading is expected to show core inflation of +0.4% for the month.
Chart of the Day – EUR/JPY
The euro came under pressure in the wake of the ECB monetary policy meeting. Selling into strength has been a good strategy on Euro/Yen in the past months as the long term downtrend has remains intact. The latest rally from 121.67 over a four day period once again came back to hit a band of overhead resistance and has fallen away again. The old pivot level around 125.00 managed to cap the upside at 124.93 yesterday and the subsequent sell-off has bolstered this as a resistance. The overnight rally on the pair could though see another test of this resistance level with a support level forming at 123.35/123.55 on the hourly chart. However the overhead supply will be looking at the rally and feel that this could prove to be another chance to sell. The daily momentum indicators are continuing to recover and suggests that the bulls are growing in confidence. They need to push through the resistance between 125.00/125.60 to suggest there is some real traction in a recovery.
