Draghi’s comments help euro recover

‘The trend is your friend till the bend in the end’ – a truer phrase could not be uttered about EUR/USD today.

The pair plummeted through key support levels on the back of comments from an EU source about the potential for negative deposit rates. While this could be a tool for warding off deflation, it would in all probability be met with stringent opposition from the likes of Germany. European Central Bank president Mario Draghi scuppered the rumour earlier this morning, and we are now seeing something of a recovery in the euro.

Eurozone PMI data today was for the most part disappointing, with business activity notably softer this month. The flash composite fell to 51.5 in November, slightly lower than last month’s number of 51.9. While still above the 50 level, which separates contraction from expansion, the index does appear to be heading in the wrong direction.

German PMI was above expectations in terms of services and manufacturing output. The US flash manufacturing number is expected to improve on last month’s, to 52.6. Unemployment claims and PPI will also be closely watched, as both numbers are directly related to tapering expectations. Two members of the Federal Open Market Committee will speak later this afternoon, too.

I maintain a bias for upside in the euro against the dollar, so any moves through 1.3490/1.35 should garner added momentum.

Spot FX EUR/USD chart

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.