Draghi Speaks, EUR Surges

It seems that we start the week with trading impetus as Draghi speaks before the Economic Monetary Affairs Committee in Brussels and EUR surges.

All Eyes on EUR

The EUR started the week with impetus, adding pips against its three most traded major counterparts, USD, GBP and JPY. Following fervent yet failing talks revolving around the formation of a German coalition government, the single currency is peaking again and reversing the losses it has seen during Monday’s Asian session.

Negotiations failed after the business-supporting Free Democratic Party (FDP) reps walked out of the room thus ending all efforts to form a three-oriented coalition government. This leaves Chancellor Merkel no other option but to form a minority government. The president is entitled to call a new election in case no government is formed.

Despite this political uncertainty hovering above the German political environment and as ECB President Mario Draghi speaks in Brussels, EUR hit 1.17343 (open) and seems to be following an ascending trend en route to 1.1770 against the USD. EURUSD seems to have broken away from the retracement it got into during the mid-European session today at 1.1800 levels and seeks some stability around 1.17.

According to Draghi, the economic expansion continues to be solid and broad-based. However, the ECB President’s remarks on the inflation dynamics, which he says yet needs to show more convincing signs of a self-sustained trend as the underlying inflationary pressures remain subdued, seem to be somewhat contradictory. Nevertheless, he assured the EU legislators that the ECB measures will preserve the current financing conditions while ensuring that the required and desired monetary stimulus gets all the amplitude it needs.

While Draghi’s statements were perceived as lacking any hawkish impetus, market participants remained muted at the German President Frank-Walter Steinmeier’s statement that the parties should think twice before forming a government to avoid new elections, EURGBP trades around 0.88897 (open). EUR also gained around 0.2% against the JPY, hitting an open of 131.445 today, after recovering from the two-month trough it hit overnight (1.31.18).