Euro Fakes Higher as Weidmann Says ECB Refrains from Forex Intervention

DailyFX   |  February 15 2013 6:44 EST

EUROPEAN SESSION UPDATE: EUR/USD quickly erased the gains that followed the hawkish remarks; JPY traders should pay attention to the ongoing G20 summit…

Did the markets temporarily forget this morning that Bundesbank head Jens Weidmann is a notorious hawk?

Towards the beginning of Friday’s European session, ECB member Weidmann confidently said that the central bank won’t cut the interest rate just to weaken the Euro, and he said that the ECB will refrain from manipulating the Euro. He added that the Euro reflects improved confidence and growth outlook.

The Euro picked up forty points and rose towards 1.3400 against the US Dollar following the comments, as traders seemed to take his comments as indicative of ECB policy. However, Weidmann consistently opposes the rest of the ECB when it comes to dovish monetary action. He publicly criticized the OMT bond purchase program that was approved in the second half of 2012. Therefore, it is hard to determine how much Weidmann’s comments today reflect general ECB opinion versus his own view.

These doubts soon seemed to catch up with the markets, as EUR/USD erased all those gains and found its way towards 1.3325, where it is trading at the time of this writing.

ECB President Draghi spoke at the G20 summit today about currencies, saying that there is too much FX chatter. He reiterated that the Euro is at a long term average. His comments reflected the comments from his press conference earlier this month, except he added that Q4 Euro-zone economic growth was worse than he expected. However, Draghi had previously predicted weakness in Q4 2012 and Q1 of this year.

Outgoing Bank of Japan Governor Shirakawa defended the BoJ’s monetary policy and said it aims to beat deflation. He also said that the weaker Yen reflects lower risk in the global economy.

The G20 summit will continue into Saturday, and Forex traders should remain weary of any joint comments or agreements on currency intervention that go past the rhetoric released by the G7 earlier this weak. The Yen seems the most vulnerable to talks of currency intervention, as any commitments to stop currency intervention on a national level could bring strength to Yen trading.

In economic releases, GBP/USD fell below 1.5500 for the first time in six months on a surprising decline in January retail sales.

EURUSD Daily: February 15, 2013

Chart created by Benjamin Spier using Marketscope 2.0

--- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .