EURUSD tests 1.13 after ECB; Oil gains despite inventory build

Summary:

• EURUSD makes 5-week low near 1.13 after ECB stand pat

• European PMIs keep deteriorating with French services plunging again

• Oil gains despite inventory build

• CBOE removes Bitcoin ETF application

The first ECB meeting of the year, and also the first since the bank ended their asset purchase programme, has seen a seesaw in the single currency, which initially fell back before recovering to trade higher once Draghi ended his speech. As was widely expected, the bank chose to keep all three of its main rates unchanged.  As is often the case with ECB decisions, the main market moves came during the press conference with Draghi explaining that the meeting was devoted to analysing the slowdown. Initially the markets seem to take the president as erring on the dovish side with the line that “risks to the outlook had moved to the downside” the most noteworthy. In terms of market reaction the EURUSD dipped to a 5-week low just above the 1.13 handle in the initial move, before bouncing from the round number. However, some more selling has been seen since the European close and the pair is back under pressure at the time of writing.

The European managers’ assessment did deteriorate at the beginning of the new year pressuring the European Central Bank to revised down its macroeconomic projections when it meets in March. The data at an European level brought a widespread deterioration in both manufacturing and services sectors. The euro slid to some extent, however, this fall was predominantly due to a rising demand for US dollars. There are some points deserving more attention. First of all, the German manufacturing sector slid into a contraction territory for the first time since in four years. Secondly, the German manufacturing output index reached its 69-month low. Thirdly, the French services PMI plunged (it reached its 59-month low) reflecting a continued drag stemming from yellow vests’ protesters. Finally all three indices for the euro area economy declined in January signalling that the economic slowdown, began in the fourth quarter of 2018, will continue as the new year kicks off.

The latest inventory data for crude oil from the US has shown an unexpected build, but despite this the market has moved higher in the hour or so since in typically choppy trade. A reading of +8.0M is the highest since early November and the only sizable build in 8 weeks, as well as coming in well above the forecast 0.2M decline. Last week’s reading was -2.7M. The private API data often plays a significant role in shaping market forecasts and against this backdrop the build does appear a little less of a negative shock, with the latest API number showing a print of +6.6M. Oil has been pretty volatile since the release, but on the whole it is attempting to move higher with the market jumping almost 90 ticks from the lows since the data was released.

Thursday’s trading in the cryptocurrency market has not been much different compared to the previous days. Cryptocurrencies have been trading rather flat so far today. According to CoinMarketCap, the capitalization of all cryptocurrencies stands a little above the $119 billion handle whereas the market capitalization of the largest virtual currency Bitcoin sits above the $62 billion mark. CBOE BZX Exchange withdrew its application concerning Bitcoin ETF backed by VanEck and SolidX on Tuesday, as the US Securities and Exchange Commision (SEC) reported in a note released on Wednesday. The application was filed in June 2018, and it experienced many SEC’s delays. The deadline for a final decision was to expire on January 27, 2019. Moreover, Jan van Eck, CEO of VanEck, told CNBC that the ongoing US govt shutdown was a cause behind the withdrawal. Nevertheless, he added that it was only a temporary withdrawal as they planned to re-fill its application in the future. “Instead of trying to slip through or something, we just had the application pulled and we will re-file when the SEC gets going again”, Jan van Eck said. On the other hand, the cryptocurrency market seemed to be rather neutral to this information as we did not observe any sizeable movements.