EUR is 'remarkably robust' as it avoids Japanese inspired market sell-off
The euro (Currency:EUR) has so far managed to avoid the sell-off that has afflicted global markets today, with the FTSE 100 trading 1.6 pct in the red it we can understand just how negative investor sentiment is at present.
The euro dollar exchange rate is however 0.1 pct up on last night's closing rate at 1.3264. The euro pound exchange rate is 0.23 pct higher at 0.8533 and the euro to Australian dollar rate is 1.45 pct higher at 1.4214.
Please be aware that the above forex rates are from the wholesale markets - your bank will affix their own discretionary spread to the numbers. However, an independent FX provider will guarantee to undercut your bank's rate, thus delivering you more currency. Please find out more here.
"For the time being the EUR/USD remains remarkably robust and if it can take out the 1.3310 level in North American trade it may rise to 1.3350 on momentum alone, but if the newsflashes out of Germany prove troubling, the pair could quickly sell off towards the 1.3200 figure," says Boris Schlossberg at BK Asset Management.
Germany: The constitutional court ruling is a risk
The German Bundesverfassungsgericht has been tasked with deciding whether the ECB's bond buying programme, known as Outright Monetary Transactions (OMT), is lawful.
It is clear that a 'no' would not be helpful to the shared currency; and it is this eventuality which is widely tipped as being the euro's key event risk of the week.
According to one of the country's top judges, if OMT are judged to be unlawful, it could even force Germany out of the euro.
“In so far as the ECB is acting 'ultra vires’, and these violations are deemed prolonged and serious, the court must decide whether Germany can remain a member of monetary union on constitutional grounds,” Udo di Fabio wrote in a report for the German Foundation for Family Businesses.
Market sell-off sparked by Japanese central bank
The Bank of Japan’s decision to hold the line on policy overnight was a disappointment to a market that has grown accustomed to ever more accommodative central banks.
"Today is perfect example of how the actions of the Japanese have global ramifications. We have long warned that the steep losses in the Nikkei point to a potential correction in U.S. stocks but up until yesterday the losses have been modest," says Kathy Lien at BK Asset Management.
Equities and commodities have responded with heavy selling, and bonds are extending recent losses. In the FX space, commodity currencies are the underperformers, and that has seen USD/CAD pop higher from yesterday’s lows.
The Bank of Japan decision was a highlight for the week, but the bigger macro driver for markets remains the Fed’s thinking on QE. Today’s event calendar doesn’t offer much to help shape that view, but Thursday and Friday will bring a some US data points that could add to expectations ahead of next week’s FOMC meeting.