The EUR Comes to the Dollar’s Rescue Ahead of Tomorrow’s ECB Decision

Macroeconomic data is on the lighter side for the day ahead, leaving the markets to consider the lie of the land ahead of tomorrow’s heavily anticipated ECB monetary policy decision and, more importantly, Draghi press conference, the ECB becoming the centre of attention, with the FED seemingly on a more dovish footing.

The EUR rallied to a $1.1554 close on Tuesday, the pickup coming off the back of the Dollar sell-off and market sentiment towards monetary policy, with divergence favouring the EUR over the Dollar for now.

There’s plenty of expectation ahead of tomorrow’s press conference and perhaps the markets have overstepped the mark vis-a vis a move tomorrow afternoon, with the ECB yet to have provided the markets with a definitive answer on the timing of a move.

Current levels are certainly reasonable when considering economic conditions, the U.S economy on a moderate growth trajectory, whilst the Eurozone shows continued signs of moving from strength to strength, but for the EUR to move beyond $1.15 levels, the markets will need to be convinced of a move and it will need to be sooner rather than later.

At the time of the report, the EUR has eased back 0.17% to $1.15345, having hit an intraday high $1.1557 through the Asian session. The downside comes off the back of some appetite for the Dollar, following the latest sell-off and also jitters ahead of tomorrow’s ECB monetary policy decision and press conference, over optimism needing to be considered to avoid being caught off guard.

With no material stats out of the Eurozone or the UK today, we will expect the pound to remain relatively range bound through the day ahead of tomorrow’s retail sales figures, which will provide the markets with more guidance on how the BoE will likely play it early next month at the next MPC meeting, the latest inflation figures certainly adding to the confusion.

For the Dollar, the Dollar Spot Index was up 0.21% at 94.799 at the time of the report, EUR weakness supporting the upside in the Dollar.

There’s been plenty of talk over the failure of getting the Healthcare Bill passed through the house and the markets writing off the chances of tax reforms and more, but the markets will need to be cognisant of the fact that the current administration is more business friendly than previous administrations in recent years and the Republican Party will need to provide voters with something before the year is out, particularly with economic numbers out of the U.S providing little inspiration.

Speaker of the House Paul Ryan had spoken not too long ago of tax reforms being delivered before the end of the year, so while the Dollar is on the back foot and the economy is growing at a snail’s pace, compared with the days of old, it may be a dangerous game to bet against the Dollar and completely write-off the U.S administration, which has a long way to go.

Macroeconomic data out of the U.S this afternoon is limited to June’s building permit and housing start figures out of the U.S, which are forecasted to be Dollar positive, numbers having been disappointing in April and May. While the figures may provide some upside for the Dollar, property sector data having been considered a barometer on the U.S economy and consumer sentiment of late, the figures are unlikely to have any bearing on monetary policy, leaving the Dollar with plenty of ground to make up through the 2^nd half of the year.