Morning brief for April 28
The ECB monetary policy meeting and Draghi’s press conference were in the spotlight yesterday. The Governing Council of the bank left its interest rates unchanged having pledged to maintain them at present or lower levels for an extended period of time. ECB policymakers confirmed that the net asset purchases at the current monthly pace of €60 billion are expected to run until the end of December 2017 or beyond if necessary.
The ECB President Mario Draghi acknowledged the strengthening of the euro zone economy. Having glued eyes to his script, he spoke of moving to a more balanced growth configuration, although risks are still tilted to the downside. He retained his dovish rhetoric but noted some improvement in the balance of growth risks. The risk of deflation disappeared; the inflation figures will be rising but at a quite slow pace. The easing bias is related to inflation figures which are quite low at the present moment.
The euro slipped to 1.0860 on the ECB’s dovishness. Yesterday’s weak closing had dented upward momentum, but it doesn’t mean that we should wait for a further slide. As long as 1.0830 is intact, we will anticipate a test of the psychologically important level of 1.1000. Today’s focus will be on the Eurozone inflation figures that are expected to pick up. The euro might positively react to the upticks, but we shouldn't wait for substantial moves.
USD/JPY is trading near 111.15. There were a great many of economic releases out of Japan (March industrial production, retail sales/overall household spending, and monthly labor market reports). The main takeaway from the data – a modest recovery of Japan’s economy is continuing, yet inflation figures refuse to budge. The yen’s reaction was subdued to this data. Most likely, USD/JPY will continue trading sideways for another couple of trading sessions, pushing towards the resistance at 112.20. Escalation of the conflict in North Korea may offer some support to Japan’s currency and send USD/JPY towards 110.00. US President Trump said on Thursday there is a change for the US and their allies ending up with “a major, major conflict” with North Korea. But the American President himself would prefer a diplomatic outcome to the dispute.
In the interview to Reuters journalists, Donald Trump also tried to defend his one-page tax plan released on Wednesday from criticism that it could increase the US deficit saying that better trading deals with US partners would definitely offset costs. US Congress will have to pass a bill to fund the government or face a shutdown this Saturday. The Democrats might refuse to fund extravagant government operations. If there is a shutdown, the US dollar will be affected on Monday next week.
Today’s focus will be on the advanced US GDP growth figures that might send the USD lower (if it is lower than the consensus forecast). Also, tonight we will receive the monthly update of the April UoM Consumer Sentiment figures. Some of the traders will be interested to hear Fed's Governor Brainard and President Harker (both are current voters in the FOMC) speaking at 8:15 and 9:30 pm MT time respectively.
GBP/USD went a little higher in the Asian session. Now it is above 1.2900. The pound watchers should be concentrated on the release of the preliminary UK GDP figures. The growth of 0.4% is the consensus forecast for this quarter, an increase that would see year-to-year growth hitting 2.2%. If the data is strong, we will see GBP advancing towards the resistance at 1.2950. But the upward momentum is not really strong, so there might be some pullbacks towards 1.2800, 1.2760.