Pound, Euro Lower After ECB & BOE Meetings, Sideways Ahead of NFP - 5.7.2013

Even though BOE and ECB decided to maintain monetary policies unchanged the Sterling and the Euro dropped widely against the greenback. Concerning ECB, the President Mario Draghi said that ”ECB rates to remain at present or lower levels for an extended period” also added “risks surrounding euro area continue to be on the downside”, sounding more dovish than in previous meetings and that increased selling pressure on the common currency. The heavier EURUSD dipped to downside hurdle at 1.2883 yesterday and from there continued in 1.2923/1.2883 tight range. Sideways are likely to remain until US NFP release later today expected to decline to 163K in June from 175K in May. Current down trend in the hourly chart is likely to continue should the US dollar strengthen with next price level likely at 1.28.

Turning to sterling, that was Mark Carney’s first monetary meeting at the head of BOE with the policy determined to remain on hold, interest rate is still at record low at 0.50% and asset purchases at £375B. The BOE have issued a statement, even though usually it doesn't when policy remains unchanged, saying that inflation was contained in the May report and output growth is consistent with outlook, but upward movement of market interest rates weigh on growth. Also an assessment of forward guidance would accompany August inflation report and the use of intermediate thresholds is likely to be used, like FED's current policy. The British pound was under selling pressure, due to concerns about market interest rates, against the greenback, falling from 1.5258 to 1.5059 yesterday, while today the negative mood remains intact pushing lower, it was lastly seen at 1.4995. In our view should the GBPUSD is not contained around 1.4995 next low is seen at 1.4833.

Early indication of June activity showed US ADP report on Wednesday increased more than expected while US PMI reports were mixed, with that said is more likely see some improvement in NFP numbers. Market participants are extremely wary about people employed in US during previous month as well as Unemployment rate as FED monetary decision is based extremely on that since inflation is well subdued at 1.36%. Thus improvement in June unemployment would increase speculation of FED slowing pace of asset purchases and that most likely would underpin US dollar but increase treasury yields and have a mixed effect on equities.