- EUR/USD Exchange Rate Dips as European Central Bank’s Mario Draghi Makes Measures Clear – Hints at further policy adjustment.
- Analysts Expect Terror for the Market in the Event of a Brexit – Some compare it to the likes of 1990s’ Black Friday.
- Federal Reserve Chairwoman Yellen Sends Dovish Message – Testifying to the senate banking committee Yellen made concerns clear.
- Forecast Clouded by Imminent Brexit Vote – However, either currency could find a boost from exceptional data prints.
After what started out as a good week for the EUR/USD exchange rate, the single currency took a big hit across the board yesterday as European Central Bank head Mario Draghi reminded MEPs that further stimulus is still on the table if it is needed.
Federal Reserve Chairwoman Janet Yellen’s lukewarm comments yesterday at the senate fell in line with what was expected so did little to actively damage the US Dollar.
EUR/USD dropped down to 1.1247 yesterday afternoon, a far cry from last week’s low of 1.1135.
EUR/USD Exchange Rate Wounded as ECB Head Eludes to Further Loosening in the Event of a Brexit
The Euro saw at least a 0.4% drop against many of the majors yesterday as European Central Bank President Mario Draghi told MEPs that further stimulus measures were on the cards if needed in the event of a Brexit.
Last week ECB board member Ewald Nowotny already said something to this effect, stating:
‘If needed, it’s secured that neither English nor European banks will have liquidity shortages’
Central banks are ready to unleash an arsenal of measures to steer the market away from a crash in reaction to the event of a Brexit. Extra liquidity measures are in full effect to enable the Banks to avoid selling of assets at cut-rate prices and if needed, the Eurobanks could work together to float a heavily damaged Pound to prevent it falling against its main rivals.
US Dollar (USD) Finds No Support from Decidedly Dovish Fed Short-Term Outlook
Chairwoman Yellen’s speech yesterday pulled out no surprises and failed to particularly inspire investors.
Ahead of her testimony to the senate, American stocks saw a nice premature boost but sentiment has become so dovish that investors are weary.
Since the rather devastating non-farm payrolls report, the Fed outlook has changed to become thoroughly dovish, with other factors such as the imminent UK EU referendum and weak global economy adding to the uncertainty. After all, the UK’s referendum is tomorrow and while ‘Remain’ sentiment may rank high within the UK currently, the uncertainty of the vote is still felt around the world and the possibilities of each outcome weighed heavily.
Joe Rundle, head of trading at ETX Capital, mentions George Soros’s remarks in his latest comments concerning the referendum:
‘George Soros is correct to say that a Brexit could lead to a catastrophic day for the pound but preparing for a re-run of Black Wednesday is not easy.
Very few of those working on trading desks in 1992 are still in the City so there is something of the unknown about what’s coming. Even the dark days of Lehmans are a distant memory for most traders. If Britain votes out, it’s fair to say we will not have seen a day in the markets quite like it.’
Tomorrow’s Referendum has Potential to Move Euro and US Dollar
With the UK’s referendum on EU membership going to vote tomorrow there is little point in discussing anything else that could affect the markets as that is assured to be the biggest impactor.
US durable goods orders have potential to move the Buck as the report tends to be a great indicator of longer-term consumer confidence. Naturally the US Dollar would enjoy some upward pressure as a result of favourably printing data.
For the Eurozone, German business confidence surveys and Markit sector PMIs will likely be drowned out by the all-encompassing roar that is the UK’s referendum. Data would have to print exceedingly well to have much of a tangible impact, otherwise markets will move in relation to whatever trend the vote manages to conjure.
Either way all focus will continue to lie on tomorrow’s exit polls and then ultimately Friday’s actual result.