ECB words dominate actions

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.

Did you know?

If overwhelmed by pessimism and falling prices, the FX market is defined as “bearish”, while if characterised by optimism and rising prices, it is called “bullish”. These two terms derive from the way in which bears and bulls attack their opponents, with the former swiping its paws downwards and the latter thrusting its horns upwards.

Word of the day
"Pip" - The smallest increment in which a currency pair can move. It is usually the fourth decimal place of the quote currency in a pair. In the case of the Japanese yen (JPY), it is the second decimal place of the quote currency.
Pro Tip

Higher leverage --> Less funds required as margin / Lower leverage --> More funds required as margin

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