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XTB TRADEBEAT

Euro edging higher after ECB minutes; stocks under pressure

Summary:

  • Euro making steady gains against most currencies
  • ECB minutes: "confident that inflation would rise"
  • DE30 threatening to break lower

The Euro has been moving higher in the last hour or so after the release of the latest minutes from the last ECB minutes. The single currency has been under pressure so far this week with yesterday’s PMIs suggesting that the slowdown in economic activity throughout the bloc that has been evident in recent months is more than just a cooling off after a stellar 2017. 

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The Euro is edging higher against most of its crosses today, with large gains seen once more against the TRY. Source: xStation

The ECB minutes are normally not that market moving (with the January release a notable exception), and while we have seen the Euro rise since their release, the move doesn’t appear to be a large reaction to their contents. The headline grabbing part of the release is that the governing council are "confident" that inflation would rise towards target in the medium term and this seems to fit with the narrative of an end of the Asset Purchase Programme by year end.

Other selected comments from the minutes are as follow:

  • Uncertainty of outlook has increased
  • Slowdown has been broad-based
  • Growth risks broadly balanced and growth is still solid, broad-based
  • More pronounced weakening of demand can’t be ruled out
  • A view was expressed that ECB was close to a sustained adjustment of inflation, but most disagreed with that view
  • Strengthening nominal wage growth provided some comfort
  • Trade woes can trigger disorderly FX moves, volatility
  • Risks of protectionism have become more pronounced

 The EURUSD hit its lowest level since last November during yesterday’s session but despite an initial strong thrust lower there wasn’t any major follow through after the disappointing PMIs. The 6-month low at 1.1676 is a possible level to look for support and until price at least recaptures 1.1765 then the market will remain under pressure. 

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 EURUSD has moved off its lowest level in 6 months at 1.1676 today but remains under pressure. Source: xStation

The DE30.cash is another market that can be sensitive to ECB related news and there has been more weakness here today. We earlier noted how talk of a 25% US import tariff on cars has weighed on the automakers in the index, with BMW, Daimler and Volkswagen all lower.

Looking at a broader gauge of European stocks, the EU50.cash has shown even more weakness than the DE30.cash in recent sessions and is shaping up for what could be a ugly week. The W1 candle at present is engulfing the past 2 weeks and is not far off making it 3! Previous peaks have seen highs met with large rejection candles which suggests the market has a propensity to reverse sharply from its highs. 

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 The EU50 could be setting up to show another big weekyl rejection candle, with previous instances leading to sizable declines. Source: xStation

 

 

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