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Focus on Europe as Draghi signals stimulus

Four key markets in focus today: Germany 30 (DAX), EUR/USD, USD/JPY and UGL Limited.

DAX
Source: Bloomberg

Germany 30

While Janet Yellen was the headline at Jackson Hole, Mario Draghi probably caused the most volatility after some fairly dovish comments. With Draghi suggesting further stimulus is on the way, resulting in a weaker euro, both these developments will benefit the DAX.

Additionally, the German Ifo business climate reading will be in focus today. Price-action wise, the DAX is now trading above the 38.2% retracement of that big slump from its recent record highs to lows just below 9,000. As a result, there are plenty of positives surrounding the DAX and we could see it extend gains in the near term.

EUR/USD

Some of the contrasting commentary by central bankers was interesting, with the BoJ and ECB sounding a dovish tone. Mario Draghi feels action may be needed to boost demand in Europe, which will see markets start to price in probability for further stimulus in the near future.

Traders are likely to short the euro at the moment and we’ve already seen further weakness in EUR/USD this morning, with the pair dropping down to 1.3184. This is its lowest level since September 2013. Later today we have the German Ifo business climate report, which could cause some volatility for the pair.

USD/JPY

The pair benefited on both sides of the equation as a less dovish Janet Yellen and a very dovish Haruhiko Kuroda hit the wires. BoJ Governor Kuroda said they may have to pursue an aggressive easing policy for some time, and still feels the 2% inflation target is achievable.

The important point here is this shuts down the sceptics who were beginning to feel the BoJ has done all it could. We’ve already seen USD/JPY pop higher this morning – it’s now trading above 104, its highest level since January this year. With plenty of data on Japan’s calendar this week, there’s room for some volatility.

UGL Limited

The mining services company reported earnings that were broadly in line with expectations. Perhaps investors will be encouraged by the turnaround the sector has been seeing in earnings. The conclusion of the DTZ sale will see some cash returned to shareholders while revenue is set to remain fairly robust. This could see the share pick up some ground today, as the market has recently been rewarding companies returning capital to holders. A break above the $7 mark could signal further gains. 

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