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Did Financial Markets Misunderstand ECB President Draghi?

Did Financial Markets Misunderstand ECB President Draghi?

Ilya Spivak,

Talking Points:

  • Commodity Dollars rise, Yen slumps as risk appetite firms in Asia
  • Risk-on mood may reflect re-evaluation of new ECB policy regime
  • S&P 500 futures hint sentiment rebound to continue into week-end

Risk appetite trends shaped FX market price action in overnight trade. The sentiment-geared Australian, Canadian and New Zealand Dollars traded higher alongside stock prices while the anti-risk Japanese Yen underperformed. The MSCI Asia Pacific regional benchmark equity index rose 0.8 percent as markets digested yesterday’s ECB monetary policy announcement.

The central bank delivered an aggressive stimulus boost but an initially positive market reaction soured after President Mario Draghi suggested negative deposit rates had reached a floor. Traders appeared to take that to mean the ECB is out of ammunition. Draghi explicitly said the bank’s focus will shift from rates to unconventional easing however, meaning he was not signaling that further measures are out of the question.

With that in mind, overnight price action may reflect traders’ re-evaluation of the ECB President’s remarks and the subsequent conclusion that the risk-off push triggered during his press conference was ill-conceived. S&P 500 futures are pointing decidedly higher, hinting that the chipper mood may continue into the week-end. The economic calendar is relatively thin, offering few roadblocks to established momentum.

Meaningful trend development seems unlikely however. Traders are probably too shell-shocked after breakneck volatility in the wake of surprising RBNZ and ECB meeting outcomes to commit to a strong bias ahead of next week’s FOMC policy announcement. Indeed, even an as-expected BOC rate decision drove sharp price swings, underscoring sentiment’s sensitivity to policy trends.

Are markets behaving as DailyFX expected so far in 2016? See our annual forecast to find out!

Asia Session

21:30NZDBusinessNZ Manufacturing PMI (FEB)56.0-58.0
21:45NZDFood Prices (MoM) (FEB)-0.6%-2.0%
23:32NZDREINZ House Sales (YoY) (FEB)5.7%-4.3%
23:50JPYBSI Large All Industry (QoQ) (1Q)-3.2-4.6
23:50JPYBSI Large Manufacturing (QoQ) (1Q)-7.9-3.8

European Session

07:00EURGerman CPI (MoM) (FEB F) 0.4%0.4%Medium
07:00EURGerman CPI (YoY) (FEB F) 0.0%0.0%Medium
07:00EURGerman CPI - EU Harmonized (MoM) (FEB F) 0.4%0.4%Low
07:00EURGerman CPI - EU Harmonized (YoY) (FEB F) -0.2%-0.2%Low
09:30GBPVisible Trade Balance (£/Mn) (JAN)-10300-9917Medium
09:30GBPTrade Balance Non EU (£/Mn) (JAN) -2650-2357Low
09:30GBPTrade Balance (£/Mn) (JAN)-3000-2709Low
09:30GBPConstruction Output (MoM) (JAN)0.2%1.5%Low
09:30GBPConstruction Output (YoY) (JAN)-1.7%0.5%Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.