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From the Floor: ECB paves way for guidance shift, boosting euro

#SaxoStrats
  • • ECB's December minutes set stage for policy shift in early 2018
  • • ECB shocker boosts euro and European rates
  • • Gold showing resilience close to $1,330/oz
  • • Oil rally fizzles after Brent touches $70/b
  • • US CPI due at 1330 GMT pivotal for USD

Saxo Strats banner
 
By John Acher

The euro jumped after the minutes of the European Central Bank's December policy meeting jolted financial markets on Thursday by signalling that the ECB could be poised to shift its forward guidance early in 2018.

The minutes of the ECB's latest governing council meeting was expected to be a ho-hum affair, as usual, but proved to be a shocker instead.

"The big news yesterday was the ECB minutes, " said Saxo Bank's FX strategy chief John J Hardy.

The ECB indicated “a clear intent that they are going to have to shift their guidance early in 2018,” says Hardy, adding that the market is now bringing ECB interest rate moves forward and higher .
That triggered a "very big move in European interest rates", and strong support for the euro , Hardy says.

That has put focus on EURUSD at cycle highs around 1.2092, while the US dollar remains weak across the board.

EURUSD up on ECB minutes
EURUSD
 Source: Saxo Bank

Pivotal for the US dollar may now be US December CPI data due together with retail sales today at 1330 GMT.

A massive trade surplus for China looked good on the surface, but was largely due to slower imports, which could cause some worries, Hardy says.

Gold resilient

Gold, which is approaching $1,330/oz, is showing resilience.

"The correction remains allusive," says Saxo Bank's commodities strategy chief Ole Hansen, adding that the financial markets' inflation focus, weaker dollar and geopolitical risks are more than offsetting fresh stock market highs and bond market volatility. 

The rally in crude oil, meanwhile, has fizzled after Brent hit $70/barrel, which triggered profit-taking.

The oil market awaits US President Donald Trump’s decision today on whether to waive or reintroduce sanctions against Iran. “A very important day for crude oil," Hansen says.

In the equities markets, Hong Kong's Hang Seng index rose almost 1% on Friday, and the index is now just about 2% from its 2007 highs.

Hong Kong stock valuations are still 20 % below US equities and the news flow out of China remains good , says Saxo Bank's equities strategy chief Peter Garnry.

US social media group Facebook announced on Thursday a major overhaul of its news feed algorithm, which Garnry says will have a meaningful negative impact on engagement and will begin to hit profitability. “This could be an important turning point,” he says,


Euros and dollars
 The ECB's December meeting minutes drove the euro higher. Image: Shutterstock

John Acher is a consulting editor at Trading Floor.

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