Home / Blog / Market Analysis / Markets Morning - Draghi the dove hits Euro for six, USD surge intensified by retail sales. EU stocks roar

Markets Morning - Draghi the dove hits Euro for six, USD surge intensified by retail sales. EU stocks roar

Market Analysis /
Greg McKenna / 15 Jun 2018

Welcome to my daily Markets Musings.

Feedback always welcome


Market Summary (6.19am Friday June 15)

The ECB has decided to end its QE program by year’s end. That wasn’t unexpected. But what really set the cat among the pigeons was the bank's edict that it would hold rates steady in the EU “through the summer” of 2019.

That raises the prospect ECB president Mario Draghi – who’s term ends in October 2019 – may leave his post without ever having had to raise rates. And that prospect, coming less than 24 hours after the FOMC took a more hawkish tilt in the US knocked the Euro for six which in turn has seen the USD sharply higher across the board.

Indeed having traded up to a high of 1.1851 EURUSD is now sitting at 1.1580 having posted a loss of 1.77% since 7am my time yesterday morning. That Euro move has put pressure on the Pound which lost 0.66% to 1.3286, but USDJPY has run into a fall ahead of 111 and is only up around a quarter of a percent at 110.55.

Worth noting, data last night for retail sales in the US (0.8% headline for May, 5.9% yoy) were stronger than expected, while jobless claims remained strong and import and export prices were up a solid 0.6% apiece in May. This is clearly data that reinforces the Fed and ECB, among others, are on a different policy path.   

So, of the commodity bloc the Aussie has fallen the most. No doubt this reflects the RBA’s own clear signal this week that, like the ECB, it too is on hold for an extended period. AUDUSD is down at 0.7488 for a loss of 1.15%. The Kiwi is down half a percent at 0.6988 while the CAD lost 0.8% with USDCAD trading at 1.3091.

Currency weakness can translate into economic advantage if sustained. So the Euro’s fall helped European bourses. The DAX rose 1.68% to 13,107, the CAC was 1.39% higher, the FTSEMIB climbed1.22%, while in London the FTSE 100 was 0.8% to the good.

Naturally a collapsing Aussie dollar has seen the SPI find some buyers as well and the soon to mature June contract is up 35 points to 6060 in what looks like a bullish outside day and suggests a good day ahead for the ASX. I’m not convinced though looking at the price action of the 26% of the index which remains under pressure and breaking down.

US traders are more circumspect than either local or European stock pickers. The S&P 500 is up 0.2% to 2,780. The Dow is around flat and the Nasdaq 100 rose a stellar 0.88%.

On commodity markets the Russians are out with a plan to increase oil production by 1.5 million bpd increase while the Saudis say a deal to take pressure of the market seems inevitable. Brent fell 1% to $75.98 but again WTI was bid and rose half a percent to $66.97. Elsewhere copper was 1.15% lower at $3.21 while gold actually rallied. Not much though, it’s at $1303.

Bitcoin, and other cryptos especially Ethereum, are higher after the SEC head said ETH is not a security. BTC is up 5% to $6,624.

Interestingly even with the solid US data the10 year Treasury is a point lower at 2.94% while the 2year is at 2.57%. Naturally, EU bonds were a little better bid.

On the docket today we have the BoJ meeting. Ut it would be a surprise if they surprised the market the way the ECB did. The RBA’s Luci Ellis is speaking at an infrastructure conference and then tonight we get German wholesale prices and EU inflation. In the US its industrial production and Michigan consumer confidence.

Have a great day and weekend.        

Here's What I Picked Up (with a little more detail and a few charts)

Shorter than usual today as I have to give a talk in Newcastle this morning.


  • I have to say I’m not entirely surprised about the divergence that is evident now between the Fed and ECB. I’ve been bleating about it for months and had a rant about it on my video and in the forex section of this note yesterday. While you’ll read stories about the members of the ECB quibbling over the language used as a way for some to justify why maybe the Euro might come back or the overnight decision was not as dovish as some read, the reality is that the EU faces a very different set of economic circumstances and possible outcomes to the US.
  • Indeed after the data last night the Atlanta Fed has upgraded its GDPNow cast for Q2 to 4.8%.  Clearly even the Fed doesn’t think that’s a sustainable growth trajectory given their forecasts that accompanied yesterday’s decision. But put another way, the Fed’s forecasts reflect a policy trajectory that is aimed at reining in the excesses of the economy and keeping it on a path away from recession. Thus the data simply reinforces the policy divergence of the two central banks.
  • It was fashionable a month or so ago to laugh at the Atlanta Fed’s GDPNow and say it always starts off the quarter bullishly and then fades. HA, to all the naysayers. Overnight the expectations for Q2GDP were upgraded to 4.8% because retail sales were so strong and  “the nowcast of second-quarter real personal consumption expenditures growth increased from 3.4 percent to 3.6 percent”.
Source: Atlanta Fed
Source: Atlanta Fed
  • China has warned the US to be careful what it does on trade and tariffs. Reuters reports, the Chinese government’s top diplomat, State Councillor Wang Yi, said there were two choices when it came to the trade issue. “The first choice is cooperation and mutual benefit. The other choice is confrontation and mutual loss. China chooses the first,” Wang said. “We hope the U.S. side can also make the same wise choice. Of course, we have also made preparations to respond to the second kind of choice.”  
Source: Twitter Screenshot
Source: Twitter Screenshot
  • Also on China,  yesterday’s triple treat data dump was disappointing and showed an economy slowing.


  • The battler, like the Euro – and perhaps the Kiwi and Pound – is under pressure again as the USD surges. What’s important here is that the divergent economic outlooks are driving a reconsideration of which regions offer the best return opportunities. Already this week I’ve noted the BAML survey which showed stock pickers are overweight US equities for the first time in more than a year. SO while I always bang on about policy divergence it’s clearly more than that. Against that backdrop, and with many offshore investors holding a jaundiced view of the outlook for the Australian economy, housing, the banks and the RBA, the AUDUSD is under pressure once again.
  • A retest of the recent low around 0.7409 seems on the cards now. And if that breaks we are looking at 0.7150 as a target.
  • The ASX held support yesterday by closing at 6016. Only just certainly, but held nonetheless. The rally overnight appears a little overcooked to me but it is bullish engulfing so I have to respect that for the moment. 6,010/20 is key support now. But it would have to get up and through 6077/82 to kick on. 
Click on me, I'll expand
Click on me, I'll expand


  • I reiterate what I said about both the Euro and Emerging markets yesterday. They will remain under pressure. Of course in the case of the Euro, it hasn’t broken the recent low yet around 1.1518 . Likewise the DXY has not broken up and through the recent high near 95.20. But if these levels break we could see the DXY head toward 98, perhaps 100 and the Euro head toward 1.12 – perhaps lower. The levels have to break first. But the chances have increased.
  • Have another look at the monthly Euro chart from yesterday for longer-term context. But in the meantime – here’s the daily.
Click on me, I'll expand
Click on me, I'll expand


  • Some sort of deal next week to increase production is coming. That much is clear given overnight comments from Russian energy minister Novak and Saudi oil minister al-Falih. But the shape of the deal is far from certain yet given the Russians seem to want a more aggressive wind back than most of OPEC. My guess is the increase will be something less than the 1 million bpd that the US is supposed to have asked the Saudis for. I say that as a guess to how OPEC may retain claims to setting its own agenda.
  • Full resolution of the charts won’t likely come until next week.  But in contrast to WTI grinding higher Brent is starting to look like it will test the lower bound of the recent range once more.
Click on me, I'll expand
Click on me, I'll expand


Have a great day's trading.

Greg McKenna

Chief Market Strategist


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