"Buy the Euro" - A Signal Draghi will be Keen to Avoid in Wyoming

A major meeting of top central bankers in Jackson Hole Wyoming is the event on the top of everyone's agenda's today, although markets may be slightly optimisitc about the possibility of fresh information emerging, according to most analysts.

The Euro was seen broadly flat through the London trading session with investors not willing to take any bets, lest European Central Bank President Mario Draghi should jawbone the currency lower.

But be warned, it could be a lack of action that could fire the Euro up.

The two main speakers to focus on are the Chair of the Federal Reserve, Janet Yellen, who will deliver a speech on 'finanical stability' on Friday, 25 August at 15:00 BST/10:00 EDT, and then Draghi, who will speak five hours later at 20:00 BST/15:00 EDT.

There has been much talk of the possibility of Mario Draghi discussing more details about tapering the ECB's asset purchase programme, which buys 60bn of bonds each month from financial instiutions in order to provide extra liquidity to markets.

However, the consensus amongst most analysts is that Draghi is in fact unlikely to say anything new on the near-term monetary policy outlook.

This could, all things equal, aid the Euro.

Last week, ECB "sources" were quoted on newswires as saying that Mr. Draghi would avoid new insight on this topic in favor of sticking to the title of the Symposium, "Fostering a Dynamic Global Economy"

This would be consistent with his 23 August speech in Germany, which focused on more general aspects of non-standard monetary policy, not the immediate outlook.

While Draghi is not likely to drop any major policy disclosures, don’t discount any market-moving announcements entirely.

The central banker did state at the last ECB rate meeting press conference that he was anticipating a discusion of the ECB's balance sheet in the Autumn, however, he made no explicit reference to 'tapering' as such.

The distinction is subtle, but suggests there is more chance he may discuss the process of reinvesting the run-off from the ECB's bond purchases when they mature, a different topic to the actualy asset purchases (APB) programme.

There are also those who think Mario Draghi may have front-of-mind concerns about the negative impact of the strengthening Euro on the Eurozone economy.

“Our view is that any comments will be aimed at preventing a further rise in the Euro, rather than providing anything for hawkish investors to latch on to. This would be consistent with the ECB's concerns that the Euro could overshoot," says Ryan Wang, Economist with HSBC Securities.

The recent sell-off in the EUR/USD has reduced anxiety about the possibility of Draghi talking down the currency, however the Euro could hardly be described as being under any kind of significant pressure. 

"Recently the EUR has been stabilising around 1.18, which ought to calm things," said NAB's Gavin Friend, who overall sees, "Draghi remaining tight-lipped at his 24-26 August Jackson Hole appearance." 

Joe Manimbo at Western Union, however, sees a risk of the Euro losing ground: 

"As for EUR buyers, who have seen their costs spike some 12% this year, they could catch a momentary break Friday if Mr. Draghi should dial up his concern over the Euro’s economy-squeezing strength."

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No Comment = a Stronger Euro

Derek Halfpenny at MUFG sees little reason for President Draghi choosing the Jackson Hole platform for a further update on the monetary policy outlook, but a comment on EUR appreciation is more likely.

"The danger of Draghi not saying much of any substance today is that the markets will take it as a ‘green light’ for further EUR buying. Although, with the ECB policy meeting not far from now we doubt the euro will advance much over the near-term," says Halfpenny.

No action would likely be a green flag to further Euro strength which remains the dominant trend in global FX at present.

“Some may interpret the absence of a signal as a reason to renew interest in the EUR,” says Richard Kelly with TD Securities in London. "There is a growing narrative that the absence of a signal could be a signal in of itself...to buy more EUR."

Don't Forget Yellen

EUR/USD could be at even more risk of falling due to commentary from Janet Yellen.

Her speech on“Financial Stability”, carries the risk that she could call for a speedier rise in interest rates in order to blunt overborrowing.

“A risk is that she elevates concern about financial stability as a factor which would warrant a more aggressive path of rate hikes. This would be hawkish; we expect more neutral remarks. That said, the July minutes point to rising concern on this topic by some of the FOMC,” says Kelly.