view update; raising EUR stop loss
EUR has had a volatile correction. There were ECB official comments that said the market over-played the hawkish parts of the speech yesterday from Draghi.
We agree, the speech was not that different from the last ECB meeting. As we discussed in the AmpGFX report yesterday, he was relatively balanced but gave an indication that some tapering in QE can be expected, but accommodation is expected to be in place for some time. He did however, emphasize his confidence in the recovery and ability to get inflation to target over the medium term.
EUR probably got a lift during its rebound from a surge in GBP and CAD on more hawkish comments from BoE Governor Carney and BoC Governor Poloz. I haven’t read these yet, but it seems in particular Carney hinted of rate hikes coming, lining up with Haldane’s comments last week. Poloz is reported to have said rate cuts have done their job, according to reports.
Our view on EUR started as much from softer US data and firmer EU data.
In terms of who has made the more hawkish comments lately, it is the Fed.
So the rise in EUR may be more about pent-up demand after a period of consolidation and steadily improving outlook (economic and political). All the central bank talk has just shaken the market loose.
We are moving our stop loss up in EUR fairly close to the market to lock in gains essentially.
We are still holding the EUR/NZD trade a bit more firmly. We still see upside for global bond yields, and/or downside for global equities. We think this poses a downside risk for NZD; a number of EM Asia currencies are weaker.
The central bank talk will naturally have the market thinking what about the RBA and RBNZ? Will they be next? Some of the arguments for higher rates in US and Canada may also apply to Australia and NZ. Output gap in NZ is considered pretty much closed by the RBNZ. House price pressures persist, although have eased. Global recovery looks more synchronised. Rates are at record lows, are they still appropriate? Economic data in both Australia and NZ are ok.
The market was blind-sided by the BoC and the BoE, a little bit by the Fed; it is wary about being blind-sided by the RBA and RBNZ. Even a hint of a policy shift could have a big impact as it did to the EUR.
However, I think the RBA and RBNZ are not about to change tack. They would be smarter to stay quiet and let what is happening overseas shake out. The housing market in both countries appears to be cooling, so no need to show additional concern over financial stability risks.
Positions
Long half unit EUR/USD at 1.1208; s/l 1.1348 (raised from 1.1248)
Long half unit EUR/NZD at 1.5474; s/l 1,5473
Long half unit EUR/NZD at 1.5549; s/l 1.5473