Currency Markets Look to ECB’s Draghi for Direction

Amid a dearth of high-profile economic data, traders on Monday will turn their attention to monetary policy. In particular, European Central Bank (ECB) President Mario Draghi will deliver a speech in Brussels that could have an impact on the currency markets.

Draghi will be delivering introductory remarks at the Quarterly Hearing before European Parliament’s Committee on Economic and Monetary Affairs at 13:00 GMT. The remarks will be used by traders to gauge the future path of ECB monetary policy. A steady recovery combined with rising inflation has fueled speculation that the central bank may be willing to put an end to its stimulus program sooner than previously expected.

Draghi’s remarks will likely feed into the euro, which was well off recent highs against the dollar at the start of Monday trading.

The central bank’s next policy monetary policy meeting will be held in Tallinn early next month.

In terms of economic data, the Spanish government will report on April retail sales at 7:00 GMT. The report is widely used to gauge consumer spending habits in the Spanish economy.

Just 15 minutes later, Switzerland’s statistics agency will report on first quarter employment, one of the country’s most closely-watched reports.

Meanwhile, Italy will release its non-European Union (EU) trade balance at 9:00 GMT.

All is quite on the US front as markets remain closed for Memorial Day. The New York Stock Exchange will reopen for normal trading hours on Tuesday.

EUR/USD

The EUR/USD has lost some momentum in recent sessions, as the dollar bounced off seven-and-a-half month lows. Repeated failure to take out the 1.12 region has also weakened the appetite of the bulls to drive prices higher. The pair briefly traded above 1.1250 last week before paring gains.

The US dollar index, a broad measure of the greenback against a basket of six currencies that includes the euro, is riding a two-day winning streak. The immediate outlook on the EUR/USD is largely tied to the performance of the dollar.

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EUR/JPY

A prolonged uptrend has pushed the EUR/JPY to one-year highs. However, the pair declined sharply last week, falling back toward the 124.20 level, which currently forms the baseline of support. On the opposite side of the spectrum, immediate resistance is located at 124.55, followed by 125.03.

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EUR/GBP

After climbing to more than two-month highs, the EUR/USD has consolidated around 0.8720. The pair faces strong immediate resistance at 0.87520, which is the swing high from last week. A clean break above that level exposes a more formidable resistance at 0.87920. This level represents the high from mid-March. A failure to break this level would lead to a triple-top formation, reflecting three failed attempts to push prices above the 0.8800 mark.

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