Huge event risk today; ECB needs to deliver

Morning Comment        

Current mid-market inter-bank spot rates (as at 07:55 BST)

Major sterling

Major US$

Sterling emigrate

Other sterling

Euro crosses

 
 Data / Events due today

Fundamental 

ECB President Draghi’s rallying call from last week continues to draw counter comments from Germany, the latest being Bundesbank President Weidmann who said the ECB should not overstep its own mandate. The view was echoed by German vive-chancellor Roesler there is a growing recognition that action from the ECB will only be another short term fix rather than addressing structural issues.

Data wise, there was a marginal downward revision to Eurozone manufacturing PMI, confirming manufacturing activity at its lowest level in three years. Similar news for the UK as the manufacturing sector contracted at its fastest pace since May 2009 with a worse than anticipated 45.4 print.

In the States, ISM manufacturing PMI disappointed with a 49.8 reading against expectations of a return to expansion territory although this was partly offset by a better than consensus ADP employment report.

Despite the jittery markets over the course of the day around data releases, the main event was last evening’s FOMC policy meeting. Again, markets were left disappointed with the Fed making no further move to stimulate growth and also leaving time frame guidance on rates at exceptionally low levels unchanged. Fed inaction saw the dollar rally as risk sentiment declined.

There a few data releases scattered around today but the only show in town will be the central bank policy meetings and in particular, that of the ECB. Great things are expected of President Draghi and his gang and we can therefore expect a high degree of volatility around 12:45pm and again at 1:30 when the press conference begins. Essentially, if the ECB deliver a scheme that satisfies investors the current debt crisis can be tackled we will see a rally in the single currency and risk in general with the US dollar and yen losing ground. Conversely, if the ECB fail to implement the necessary policy changes then the euro can expect to be roundly hammered with safe haven flows once again flying towards the States.

Technical  

£-usd 

With momentum studies relatively neutral and the 1.5720/85 resistance zone holding firm, the dip to mid-range at 1.5525 came as expected in overnight trade. We open a touch north of this level so we will continue to monitor this level as a gauge of near term sentiment. Below 1.5525 brings 1.5460 then 1.5395/902 and 1.5270 into play. Resistance ahead of the strong 1.5720/85 area lies at 1.5615 and 1.5675/80.

 £-eur  

Sterling continues to correct lower against the euro but also remains underpinned well ahead of 1.2665 retracement support. Below here needed to gives bears the appetite to tackle the strong 1.2575 level then 1.2500 psychological support. Resistance now at 1.2750, 1.2815/20, 1.2840 and 1.2870/90. 

Analysis of further currency pairs, forward contract pricing, and information on limit or stop loss orders is available at any time on request.

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