Daily Market Report 11/01/13

Draghi’s euro assessment inspires risk appetite

A strong euro rally coincided with unexpected dollar weakness yesterday as a risk-on attitude inspired investors to seek higher returns in riskier assets. The ECB’s interest rate announcement preceded Mario Draghi’s press conference, which acted as the trigger for the day’s big move.

The ECB president shifted the onus from the central bank on to the various economies that composite the 17-nation single currency. Mechanisms such as the OMT have been lauded as a success in keeping the euro area together, as major banks downgraded the likelihood of a Greek exit from the euro zone.

European finance minister Jean Claude Junker reiterated the ECB’s role in soothing exit concerns, however issued a reality check by saying “the worst is over, but what we still have to do is difficult”. Very measured in his statement, Draghi has distanced the continent from the financial crisis, yet the area is still facing a growth crisis, as the current recession and high unemployment still plague Europe.

Recent weeks’ rising confidence came to its nadir yesterday as the euro swiftly strengthened against its major counterparts. This optimism caused people to leave the safety of the dollar, a currency predicted to strengthen in 2013, as investors looked for bigger returns.

This dollar weakness represents an excellent time to buy the greenback as the shift away from the trend creates the short term opportunity for those looking to benefit at an augmented level. Considering the negative outlook on the UK and the weak global growth, it is likely that once the honeymoon period of the euro zone’s successes fade, the dollar will once again become shelter from the plethora of economic problems.

 

Today’s Key Announcements:
  • 09.30am – GBP – Manufacturing Production m/m: expected to rise to 0.5% from -1.3%
  • 13.30pm – USD – Trade Balance: deficit expected to reduce to -41.1b
  • 13.30pm – USD – Import Prices m/m: expected to increase from -0.9% to 0.1%