Focus overnight was all ECB. While the markets were preparing for the ECB to move in a more positive direction the sultan of sophistry, Mario Draghi, was at his best firing knuckleball during his prepared comments but finishing with a wicked curve ball. While interest rates remain on hold and the prepared statement was arguably dovish Draghi’s press conference forward guidance suggested that a shift in policy was on the horizon which kicked the Euro bulls into overdrive as there will little ambiguity between political uncertainty and data strength during his presser.
Commodity prices continue to drop like a sack of potatoes with Oil leading the charge as bearish market forces, rather than anticompetitive price fixing politics are now in the driver’s seat.
Euro
Given Draghi’s hawkish tilt, markets ferociously bought EUR across with both EURUSD and EURJPY leading the charge. Expect the EUR crosses to remain buoyant. However, given high USD demand, which is projected to accelerate as we near next week’s FOMC, he EURUSD gains will likely be capped during the FOMC buildup.
Amazing what a subtle shift in the ECB playbook can do for EUR sentiment leaving many wondering what ever happened to dovish Draghi.
Australian Dollar
Commodity prices have hit the skids as the China expansion motor is looking a bit lethargic these days.
While it’s not just an oil storyline as both copper and iron ore are looking extremely vulnerable, but oil prices are indeed providing the grease for this slippery commodity slope.
EURAUD has been in demand, pressuring the Aussie, as the markets seize the current story line that the EUR will hold firm against everything but the dollar even more so versus commodity currencies which are struggling in the face plummeting oil prices.
All the while US yields look stationed to make higher highs which are blending into a toxic cocktail for the Australian Dollar
Japanese yen
Both EURJPY and USDJPY demand have weighed on Yen sentiment and while the critical 115 level has held, but now at close range, it’s more about when rather then if, as we approach what is expected to be an attractive Non-Farm Payroll number
EM Asia
US yields have certainly kicked into high gear since stellar ADP print. With tonight’s NFP supposed to come in well, the market will continue gearing up for the anticipated rate hike next week.None the less there appears to be little panic in EM Asia as the dealers are not chasing the USD move higher as they have been prone to in the past, but pockets of USD selling interest continues to emerge as the broader market is still uncertain about the pace of US tightening. The USD continues to lag US bond yields which may imply that after the FOMC is done the dollar may peak and reverse. However much of the speculation on APAC EM is the resumption of buoyant risk appetite and a continued improvements in the global growth story line, all of which is open to much debate.
