Risk appetite has gotten a boost this morning, with optimistic buying patterns emerging throughout the Asian and European sessions which has global equities off to a positive start for the new trading week. While Germany would like to think their 1-nil victory over Argentina to take their fourth World Cup was the catalyst to drive the Euro higher this morning, it has more to do with tightening of spreads between Portuguese and German debt as the worries of contagion due to the Banco Espirito Santo continue to fade. A new CEO and executive team along with assurances from Portugal’s prime minister that taxpayers would not be called upon to bail out failing banks, has calmed participants worries, and lead to positive price action so far this morning. The FTSE, Dax, and Stoxx are all well in the green midway through their session, while EURUSD remains well-bid above the 1.3600 handle. The one thing that could cap any further EUR exuberance is the fact that Mario Draghi is speaking later today at the European Parliament’s Economic and Monetary Affairs committee at 13:30 EST, and may likely try and talk down the common-currency by referencing its resilience and the negative consequences on dis-inflationary pressures within the zone.
The North American economic calendar is light today, but central bank policy makers take center stage later in the week with Janet Yellen testifying before Congress on Tuesday and the Bank of Canada meeting on Wednesday. The USD’s performance has been less than inspiring after the minutes of the last FOMC meeting were released, though Yellen’s remarks at the semi annual congressional testimony will give market participants another crack at deciphering hints at the future path of monetary policy. With the hawkish undertones from regional presidents remaining in the minority on the FOMC it is likely Yellen continues to sound dovish and telegraph the Fed could accept more inflation in order to hit it’s employment mandate – though this argument is getting tougher to defend with the unemployment rate creeping ever closer to their target. The big dollar is firmer against the Yen this morning, heading into the mid-101s as US yields find some support and the Nikkei adds 0.88% to its valuation.
There is a slight residual hangover from the Bank of Canada meeting experienced on Friday that are weighing down the Loonie this morning, though soft price action in the commodity space with WTI closing in $100/barrel and Gold is down almost $20/ounce isn’t helping matters for the commodity-linked currency either. The highlight of the week for Loonie traders will be the Bank of Canada interest rate meeting on Wednesday, and while some had been expecting the BoC to sound a little more hawkish than the have in the past as the downside risks to inflation have eased, the employment numbers on Friday will likely have the BoC keep their balanced tone and reiterate there is more slack in the labour market that will need to be worked out before the central bank can contemplate tightening lending conditions.
Further reading:
EURUSD
AUDUSD Bearish Reversal – Elliott Wave Analysis
