ECB words dominate actions

March 11, 2016

The phrase of yesterday was ‘kitchen sink’, which for those not familiar, comes from the English expression for throwing everything at a problem. That was the approach of the ECB to the slow growth, low inflation and falling inflation expectations of the Eurozone. The currency reaction was very telling. The euro was initially weaker, on the basis that the measures went further than was generally anticipated, but interest rate markets look a different view (yields rising) which eventually over-whelmed the currency and dragged it higher in response. Furthermore, Draghi’s comment that “we don’t anticipate it will be necessary to reduce rates further” fuelled the re-bound in the single currency that ensued. This left the single currency nearly 2% firmer against the dollar than before the meeting, which I’m sure is not the reaction that the ECB either wanted or expected.

For today, markets are still likely to be absorbing the impact of yesterday’s ECB announcements. Equities were also on something of a roller-coaster, with equities having been up around 3.5% (Eurostoxx 50) before ending the session in negative territory. There are no key data releases for the US or Eurozone, with the Canadian jobs data the main focus, especially given the less dovish message emanating from the Bank of Canada earlier this week when it kept rates on hold. The CAD has been a little more consolidative in recent days after the strong recovery seen over the past two months. USDCAD support comes in initially at yesterday’s low of 1.3229.

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