Talking Points

• Major Currencies Consolidate vs US Dollar in Quiet Asian Trade
• All Eyes on ECB Officials for Clues on Debt Crisis Support Role

Major currencies were in consolidation mode overnight, drifting sideways in narrow ranges against theUS Dollar, as another lackluster set of economic data allowing traders an opportunity to digest recent volatility. A similarly uneventful set of scheduled event risk in European hours puts the spotlight on the speaking docket as a series ofEuropean Central Bank officials take to the wires. TheAustralian and New Zealand Dollars narrowly outperformed as periphery Eurozone yields corrected modestly lower, triggering mild relief in risk aversion.

Traders will be most concerned with comments fromECB President Mario Draghi andGerman Bundesbank President Jens Weidmann, looking for guidance on the evolution of the central bank’s position on taking up the role of a true lender of last resort for the Eurozone. The markets havebeen pining forsuch an outcome,hoping policymakers willopenly offerabackstopfor debt-strapped members of the currency bloc by pledging to use the strength of their balance in an unlimited capacity to purchase bonds and cap sovereign yields. Such an action would buy afflicted Eurozone member states the time they need toreformtheirbudgets and implement austerity.

The ECB hasleaned on its narrow mandate to provide price stability as a way to avoid outright QE so far, and investorswill be keen to get a reading on the degree of pain that bond markets will have to inflict on Eurozone sovereigns for the monetary authority to begrudgingly step into the breach. With that in mind, Mr Draghi’s comments ought to prove most potent, presumably representing the position of the bank as a whole. Any noticeably stark contrasts with his position and that of Mr Weidmann – an ardent critic of ECB intervention into bond markets – will be interesting to monitor in that it reveals any widening of the already emerging rift between Germany and the remainder of the currency bloc.

Needless to say, any indication that the ECB is inching closer toward a more aggressive support role would naturally prove supportive for the Euro as well as for risk appetite at large, weighing on the greenback against itssentiment-linked counterparts. Alternatively, a clear message ruling out more forceful actions from the central bank or hints that the subject is fanning the flames of dissent among officials is likely to have the opposite effect.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

---Written byIlya Spivak, Currency Strategist forDailyfx.com

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