Daily FX Trading Update: Remarks from ECB Officials Spark EUR Selloff – May 20, 2015

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The US dollar regained a lot of ground to its FX trading counterparts, thanks to dovish remarks from European central bank officials. This was enough to bring risk aversion back in the financial markets, lending support to the safe-haven dollar. In addition, data from the US economy has been stronger than expected, with building permits and housing starts both surpassing expectations. For today, the FOMC minutes are up for release and reassuring comments from Fed officials could continue to keep the dollar supported. On the other hand, concerns about the ongoing slowdown in the economy could force the Greenback to return its recent wins.

The euro suffered a sharp selloff in recent FX trading, thanks to pessimistic comments from ECB officials. According to ECB Board member Benoit Couere, the central bank might need to lower deposit rates further or to front-load its QE program before summer in order to boost liquidity in the region. ECB official Noyer echoed this sentiment in saying that the central bank stands ready to do more in order to bring inflation closer to the 2% target. Aside from these, EC President Juncker dismissed speculations that a reform proposal has been passed for Greece, increasing the odds of a default or euro zone exit.

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The pound followed in the euro’s footsteps as it returned its recent wins to its FX trading rivals. UK inflation data was weaker than expected and confirmed the deflation in the economy, as the headline reading showed a 0.1% decline in price levels. The core CPI fell from 1.0% to 0.8%, farther away from the central bank’s 2% target. For today, the BOE minutes are up for release and downbeat remarks could push the pound much lower.

The franc was also in a very weak spot in recent FX trading sessions, as risk aversion took over the forex market. There have been no reports released from the Swiss economy then and none are due today, indicating that the franc could take its cue from other European currencies and events.

The yen took advantage of the run in risk aversion to advance against its forex counterparts, except for the safe-haven US dollar. There have been no reports released from Japan then while today had the preliminary GDP reading on tap. The report indicated a 0.6% expansion, stronger than the projected 0.4% growth figure.

The comdolls took heavy blows after risk appetite weakened in the financial markets. The RBA meeting minutes provided a bit of support for the Aussie as it suggested that the central bank might wait a few more months before considering another rate cut. Meanwhile, the New Zealand dairy auction showed a 2.2% decline in prices, showing that the downturn in the industry isn’t over yet. Earlier today, Australia reported a 6.4% increase in its Westpac consumer sentiment index.

To contact the reporter of the story: James Brennan at james@forexminute.com

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.