Euro Drops After ECB Meeting; Focus Shifts to U.K. Election

  • Shared currency slips under 1.1200, touching lowest this month
  • Pound steady as market now eyes results of British election

The Bloomberg euro index dropped as much as 0.5 percent after the European Central Bank left rates and policies unchanged while trimming expectations for inflation through 2019. Meanwhile, the pound was steady near 1.2930 before the close of U.K. election polls.

The euro declined versus all of its G-10 peers and fell below 1.1200 versus the dollar, its lowest this month, amid selling by interbank and short-term trading accounts, some of which were unwinding stale euro longs. ECB officials now see inflation at 1.6 percent in 2019, down from a March projection for 1.7 percent. Market participants have turned their attention to the U.K., where voting ends at 10pm local time and exit polls are expected to be released shortly afterward. Follow updates here.

  • The ECB raised its forecasts for annual economic growth by 1/10th of a percentage point annually, helping drive the bank’s decision to rule out further rate cuts
  • As ECB President Draghi fielded questions after his opening statement, the EUR fell to a fresh low at 1.1195 before steadying. Trading had been choppy with the common currency climbing as high as 1.1250 before falling back. Bids were filled below 1.1220 and stop-loss sell orders below 1.1200 were challenged, likely leaving some still unscathed with macro accounts continuing to seek to buy EUR on dips, according to traders in Europe
    • EUR may find technical support at 1.1165, the low from May 31, with additional support likely ahead of 1.1100, where around EU8.7b of option expiries roll off Friday
  • USD/JPY climbed to a fresh high for the day at 110.38, adding to the dollar’s improved tone. USD/JPY gains brought the pair close to key technical resistance from the 200-DMA at 110.46 and the June 6 high at 110.53, an area where stop-loss buy orders may be placed, according to a trader in Asia. USD gains tracked the 10-year Treasury yield, which rose above 2.21%
  • GBP/USD was trading at ~1.2930 amid a modest rebound off the session low at 1.2908 that briefly penetrated the 21-DMA at 1.2918, as markets await election results. The Conservative Party is expected to defeat the Labour opposition, according to recent polls
    • GBP seen as likely to strengthen initially if results show PM May’s Tory party with a clear majority
    • GBP to find offers ahead of 1.3000, though stop-loss buy orders are positioned above 1.3020, according to traders in Europe
    • Tech resistance may be at 1.3048, which is the 2017 high in the pair; breach likely to allow gains toward the Sept. 22 high at 1.3121
  • The U.S. morning was dominated from testimony before the Senate Intelligence Committee by former FBI Director James Comey. While the market was engrossed by the testimony, it failed to produce any significant market-moving fireworks. The Bloomberg Dollar Spot index advanced 0.2 percent and the dollar was up versus a majority of its G-10 peers
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