As we indicated yesterday in advance of the speeches that were to follow by central bankers on both sides of the Atlantic, the likelihood that there would be turbulence in those currency pairs that contain either the Euro or the US dollar was high. Our historical analysis of price action around such speeches, using the Mandelbrot algo routine, showed the likely timing and scale of the moves, and that there could be wild swings.
All of this came to pass.
When Mr. Draghi uttered the immortal phrase “… signs of sustained turnaround in core inflation have somewhat weakened mainly due to lower oil prices and delayed reaction to a stronger Euro”, the Euro-dollar pair plunged to below the big figure of 1.07 momentarily, before coming to some kind of equilibrium between 1.0710 and 1.0730. This lasted until Ms. Yellen got to her feet. When it was apparent that she was not going to give anything that could be construed as a definitive indication of interest rate rises in the US in December, the market sold the dollar, and the Single Currency leapt to the upside. But there was more to come. Stanley Fisher, Vice Chair of the Fed, opined that a strong dollar remained a headwind to the U.S. economy, and that accommodative monetary policy helped to withstand that impact. This was exactly not what the dollar bulls wanted to hear, and there was more selling, with some more wild swings in the process.
Two reports that could impact today
There are two notable reports due later in the day that could have an impact on the currencies in question. These are Eurozone Gross Domestic Product and U.S. Retail Sales. The latter has been the one that most moves the market but in light of Mr. Draghi’s remarks yesterday, the GDP figures could get more of a reaction than is usually the case.