Economic data releases were in short supply on Monday, leaving Forex traders to looking elsewhere for direction. They found it in remarks by European Central Bank Mario Draghi, as well as in German politics, Brexit developments and rising Treasury yields.
ECB president Mario Draghi
didn’t say anything fresh or insightful. All Draghi did was to reiterate that the Eurozone economy needs an ample dose of monetary stimulus due to weak inflation. Meanwhile a minor party has walked out on talks with Angela Merkel, leaving the German Chancellor unable to form a coalition government; she may opt for new elections. EURUSD
dropped on the news of the political impasse in Germany, falling from 1.1787 to 1.1727 by the end of the day, just slightly below the mid-point of the November range.
rallied from the open, climbing from ¥112.09 to ¥112.70, snapping a one-week downtrend in the process. A modestly better risk tone and rising US Treasury yields underpinned the currency pair.
Sterling traders concentrated on Brexit news. UK Prime Minister Theresa May is reportedly willing to double Britain's “divorce settlement” with the EU, from £20 billion to £40bn. GBPUSD rallied from 1.3255 to 1.3277 initially on the news, but then retraced the entire move, and then some, closing at 1.3232. Broad US dollar strength and concerns that the divorce bill question is far from settled led to GBPUSD selling.
The antipodean currencies and the Canadian dollar finished the session with losses.
Chancellor Angela Merkel may opt for new elections after hitting a political impasse has impacted the euro. Photo: Shutterstock
Wall Street finished with gains. Traders were unperturbed over President Trump calling North Korea a “state sponsor of terrorism” and promising new sanctions. Traders didn’t care that Janet Yellen
said she would resign from the Federal Reserve
board when her term as chair expires.
Sterling may be centre stage because of the Inflation board hearings. Comments from Bank of England officials combined with the ongoing debate about the EU/UK divorce settlement may inject some volatility into GBPUSD
GBPUSD has bounced inside a 1.3030-1.3340 range since the beginning of October and is in an intraday uptrend while prices are above 1.3190. A decisive break above 1.3340 would extend gains to 1.3450.
Michael O'Neill is an FX consultant, currency strategist and author of the Trade of the Day at Loonieviews.net. Follow Mike or post your comment below to engage with Saxo Bank's social trading platform.