Did Financial Markets Misunderstand ECB President Draghi?
11 Mar 2016 06:49, GMTTalking 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
| GMT | CCY | EVENT | ACT | EXP | PREV |
|---|---|---|---|---|---|
| 21:30 | NZD | BusinessNZ Manufacturing PMI (FEB) | 56.0 | - | 58.0 |
| 21:45 | NZD | Food Prices (MoM) (FEB) | -0.6% | - | 2.0% |
| 23:32 | NZD | REINZ House Sales (YoY) (FEB) | 5.7% | - | 4.3% |
| 23:50 | JPY | BSI Large All Industry (QoQ) (1Q) | -3.2 | - | 4.6 |
| 23:50 | JPY | BSI Large Manufacturing (QoQ) (1Q) | -7.9 | - | 3.8 |
European Session
| GMT | CCY | EVENT | EXP | PREV | IMPACT |
|---|---|---|---|---|---|
| 07:00 | EUR | German CPI (MoM) (FEB F) | 0.4% | 0.4% | Medium |
| 07:00 | EUR | German CPI (YoY) (FEB F) | 0.0% | 0.0% | Medium |
| 07:00 | EUR | German CPI - EU Harmonized (MoM) (FEB F) | 0.4% | 0.4% | Low |
| 07:00 | EUR | German CPI - EU Harmonized (YoY) (FEB F) | -0.2% | -0.2% | Low |
| 09:30 | GBP | Visible Trade Balance (£/Mn) (JAN) | -10300 | -9917 | Medium |
| 09:30 | GBP | Trade Balance Non EU (£/Mn) (JAN) | -2650 | -2357 | Low |
| 09:30 | GBP | Trade Balance (£/Mn) (JAN) | -3000 | -2709 | Low |
| 09:30 | GBP | Construction Output (MoM) (JAN) | 0.2% | 1.5% | Low |
| 09:30 | GBP | Construction Output (YoY) (JAN) | -1.7% | 0.5% | Low |
Critical Levels
| CCY | Supp 3 | Supp 2 | Supp 1 | Pivot Point | Res 1 | Res 2 | Res 3 |
|---|---|---|---|---|---|---|---|
| EUR/USD | 1.0281 | 1.0677 | 1.0927 | 1.1073 | 1.1323 | 1.1469 | 1.1865 |
| GBP/USD | 1.3841 | 1.4040 | 1.4160 | 1.4239 | 1.4359 | 1.4438 | 1.4637 |
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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