Euro Reaches 1-Year High

Daily Analysis - 28/06/2017

Draghi Comments Lift Common Currency

The Euro is holding strong close to a 1-year high against the US dollar on Wednesday after European Central Bank President Mario Draghi hinted that the days of aggressive monetary stimulus were numbered. The greenback is under pressure after a vote of US healthcare legislation was delayed, further impeding the White House’s policy initiatives.

Further Euro Upside in Sight

The rally in the Euro followed comments from ECB President Mario Draghi at a central bankers’ conference in Portugal suggesting that deflationary forces had been replaced by reflationary tendencies. Draghi however tried to temper his hawkish tone by adding that any change in the ECB's monetary policy stance would be gradual, especially when taking into account the Euro Area economy’s need for "considerable" monetary support.

A raft of recent economic indicators suggests activity in the region is gaining momentum. Investor speculation has been growing that the ECB will announce further asset purchase cuts during the second half of the year. The positive assessment of the economy from a traditionally more dovish Draghi has further reinforced that view. In the aftermath of the remarks, EURGBP has been surging higher, surpassing key resistance at 0.8870 and was last seen trending around the 0.8880-mark.

US Home Price Gains Cool

Home prices in the United States rose less than forecast in April according to the widely followed S&P Case-Shiller National Home Price Index. The 20-city home price index edged 0.30% higher on a seasonally adjusted monthly basis through the end of April compared to the 0.50% recorded in March and expectations of a 0.40% gain. Year over year, the index climbed 5.70% versus the 5.90% rise in March. Dallas, Oregon, Portland and Seattle posted the highest yearly gains in April while Cleveland recorded the smallest gain at 3.40%.

Even with positive price gains, the tech-heavy Nasdaq Composite is extending a two-day selloff in early Wednesday trade, triggered in part by a $2.7 billion European Union fine for Google after the company broke anti-trust laws. Sentiment was hurt further after several global businesses reported cyber attacks against their computer systems.

Moderate Canadian Growth

Bank of Canada Governor Stephen Poloz attempted to temper market expectations with his comments on the Canadian economy on Tuesday, indicating that growth is likely to moderate in the coming months after an exceptionally strong start to the year. Canada lost over CAD 60 billion in national income since crude oil prices tumbled in 2014.

The Central Bank, with a view to reviving the economy, slashed interest rates by 50 basis points the following year to help offset the decline. Bank of Canada Governor Stephen Poloz reckons those cuts have "done their job," as evidenced by the 3.70% annualized growth recorded during the first quarter. However, Poloz added that the upcoming re-negotiation of the North American Free Trade Agreement could prove to be a major headwind as businesses hold back on investment decisions. Following a steep rally on Tuesday, EURCAD is correcting lower in early Wednesday trade, with prices hovering around 1.4930.

Chinese Industrial Profits Swell

Earnings booked by Chinese industrial firms soared 22.70% during the first five months of the year to CNY 2,904.00 billion versus a 24.40% surge reported between the months of January to April. State-owned industrial enterprises posted a 53.30% profit jump, while private sector income grew by 14.00%. Of the 41 industries surveyed, 38 said they reported year-on-year profit, with mining, petroleum processing, chemical raw material and non-metallic mineral products processing recording the strongest momentum.

During the month of May, industrial profits increased by 16.70% from a year ago to CNY 625.90 billion, accelerating from the 14.00% expansion registered back in April. Amid the more upbeat economic data, the Yuan has extended a recent winning streak, with a longer-term downward trend potentially emerging after USDCNH slipped lower during the previous session. The pair was last seen trending just above the 6.8000 level ahead of the European open.