Dollar is gaining momentum as the US session goes on . That’s partly helped by ECB disappoint as we see EUR is now the weakest one for the day. DOW pared initial gains and it’s trading nearly flat. Markets are now awaiting Trump’s signing of the order for tariffs. USD/CHF has taken out 0.9490 resistance mentioned earlier. Quickly, focus now turns to 1.2268 in EUR/USD. 
Dollar gains momentum with help from Euro selloff
USD/CHF forming head and shoulder bottom
USD/CHF is a pair to watch for the rest of US session as it’s pressing 0.9490 resitsance. Break there will complete a head and shoulder bottom pattern. LS: 0.9254, H: 0.9186, RS: 0.9337. In that case, further rise would be seen to 100% projection of 0.9186 to 0.9490 from 0.9337 at 0.9464. And as USD/CHF could have reversed its down trend, there would be prospect of a test on 0.9977 further down the road. But agian, that’s subject to a solid break of 0.9490 first.
Euro staying in range as Draghi tones down language change
Euro fails to extend gain as Draghi tried to tone down the change in language. While the decision was unanimous, Draghi emphasized that it’s just removing “explicit reference” to the chance of increasing the size of the APP again. However, firstly, ECB will keep interest rate at the current level for an extended period after the APP ends. And ECB is still keeping the option to “extend” the APP beyond September.
Here are the updated economic projections:
GDP
- 2018 at 2.4% vs 2.3% prior
- 2019 at 1.9% vs 1.9% prior
- 2020 at 1.7% vs 1.7% prior
Inflation
- 2018 at 1.4% vs 1.4%
- 2019 at 1.4% vs 1.5%
- 2020 at 1.7% vs 1.7%
EUR/USD fails 1.2443 so far. Draghi’s press conference script.
EUR/USD tries to break 1.2443 as ECB turned less dovish in the statement. But no follow through buying seen yet.
US initial jobless claims rose 21k to 231k
US initial jobless claims rose 21k to 231k in the weekended Mar 3. Prior week’s 210k was the lowest since 1969. Four week moving average rose 2k to 222.5k. Continuing claims dropped 65k to 1.87m in the week ended February 24.
From Canada, housing starts rose to 229.7k in February, above expectation of 220k. New Housing price index rose 0.0% mom in January versus expectation of 0.1% mom. Building permits rose 5.6% mom in January versus expectation of 1.3% mom.
Markets are now listening to ECB Draghi’s press conference, and await Trump’s order of steel and aluminum tariffs
Euro mildly higher as ECB drops pledge to increase QE if necessary
Euro jumps slightly after ECB kept interest rates unchanged at 0.00%. More importantly, ECB dropped the pledge to “increase” the size of QE if necessary. That is “If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the asset purchase programme (APP) in terms of size and/or duration.” is omitted from from today’s statement.
Below are the March 8 and January 25 statement for reference. But for now, EUR/USD is staying below 1.2443 temporary top as we await Draghi’s press conference.
March 8 Statement (Today)
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.
Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of €30 billion, are intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The Eurosystem will reinvest the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.
January 25 statement
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.
Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the new monthly pace of €30 billion, are intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the asset purchase programme (APP) in terms of size and/or duration. The Eurosystem will reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.
Dollar higher into US session. 0.9490 in USD/CHF watched
Dollar rises broadly entering into a rather busy US session. 
ECB will announce rate decision at 12:45 GMT. But focus is on Mario Draghi’s press conference at 13:30 GMT.
US will release challenger job cuts, jobless claims.
Canada will release housing starts, building permits, new housing price index.
Also BoC governor Stephen Poloz will speak.
And, Trump will formally sign the order for steel and aluminum tariff. Canada and Mexico are expected to get temporary exemptions.
Based on CHF’s broad based weakness, 0.9490 in USD/CHF will be a level to watch.
Euro’s pre-ECB retreat just shallow
Euro trading generally lower today ahead of ECB. But it’s clearly just paring some of this week’s gain as traders turn cautious. EUR remains the strongest one for the week and the month. And over the last four hours, it has indeed regained some ground, showing that the retreat is rather shallow.
There is only one important thing to note today, whether ECB will change forward guidance and drop easing bias. We believed that ECB won’t do anything today and leave the options for June meeting. There are just too many uncertainties out there, including US trade tariffs and Brexit negotiation. ECB will keep the open to extend the EUR 30b a month asset purchase program after September.
Here are some suggested readings on ECB:
German factory orders -3.9% mom, Swiss unemployment rate at 2.9%
German factory orders Feb: -3.9% mom vs exp -1.6% mom vs prior 3.0% mom
Swiss unemployment rate Feb: 2.9% vs exp 2.9% vs prior 3.0%
Little reaction to the data as markets await ECB later today. Recent rebound in EUR/CHF suggests pull back from 1.1832 has completed at 1.1445 already. But the corrective pattern from 1.1832 could still extend with another falling leg before completion. Mario Draghi’s message will likely decide whether EUR/CHF will target 1.1832 first, or 1.1445 again first.
Canada and Mexico to be temporarily excluded from steel and aluminum tarrifs, CAD rebounds
Trumps is set to ignore all the oppositions from Republicans and business leaders and sign the order for steel and aluminum tariffs on Thursday afternoon at the White House. It’s being planned to hold at 3:30pm ET in the Roosevelt Room. A top White House trade advisor Peter Navarro said “the proclamation will have a clause that does not impose these tariffs immediately on Canada and Mexico”. But whether there will be permanent exclusion will depend on NAFTA negotiations. Press secretary also gave similar comments as “there are potential carve-outs for Canada and Mexico based on national security, and possibly other countries as well”.
Canadian dollar responded quite positively to the news with USD/CAD dipping sharply after failing to take out 1.3000.
China Foreign Minister Wang Yi warned “justified and necessary response” to trade wars
China Foreign Minister Wang Yi pledged to have “justified and necessary response” to trade wars. He said that “A trade war has never been the right way to solve the problem, especially under globalization.” And, these conflicts “will only harm everyone and China will surely make a justified and necessary response.”
At the same time, released today, China’s trade surplus widened to USD 33.7b in January, or CNY 225b. Both were way better than expectation of USD -8.5b or CNY -71b deficit.
Exports rose 44.5% yoy. Imports rose 6.3% yoy.
Australia Jan trade balance: Massive AUD 1.06b surplus
Australia recorded massive trade surplus of AUD 1.06b in January, a turnaround from December’s AUD -1.15b trade deficit.
Exports jumped 4% mom to AUD 33.9b, with 4% rise in non-rural goods, 54% rise in non-monetary gold. Much more than offsetting -8% fall in rural goods.
Imports, on the other hand, dropped -2% to AUD 32.9b. Consumption goods dropped -7%, non-monetary gold dropped -19%, capital goods dropped 1%.
AUD/JPY is tentatively drawing strong support from key medium term cluster at 81.48, 50% retracement of of 72.39 (2016) low to 90.29 (2017 high) at 81.34. But the bigger hurdle is on 84.34 support turned resistance for confirming short term bottoming. Otherwise, risk will remain on the downside.
CAD staying the weakest after BoC, DOW shows resilience
The US session is so far rather dull. Canadian Dollar remains the weakest one for the day and the week. Cautious BoC statement gave the Loonie no support. Fresh selling is seen, together with rebound in US stocks. 
Talking about stocks, they’re rather resilient so far. There are rumors that Trump is going to sign presidential proclamation tomorrow regarding the steel and aluminum tariffs.
DOW dipped to as low as 24571.50 but recovered. Risk stays on the downside. As we pointed out before, 25000 seems to be tough hurdle. But stocks’ reaction to the Gary Cohn resignation news is rather muted.
EU’s official response on possible US tariffs for steel and aluminum
Here is the official statement published today.
European Commission outlines EU plan to counter US trade restrictions on steel and aluminium
The College of Commissioners discussed today the EU’s response to the possible US import restrictions for steel and aluminium announced on 1 March. The EU stands ready to react proportionately and fully in line with the World Trade Organisation (WTO) rules in case the US measures are formalised and affect EU’s economic interests. The College gave its political endorsement to the proposal presented by President Jean-Claude Juncker, Vice-President Jyrki Katainen and Commissioner for Trade Cecilia Malmström. Speaking after the College meeting, Commissioner Malmström said: “We still hope, as a USA security partner, that the EU would be excluded. We also hope to convince the US administration that this is not the right move. As no decision has been taken yet, no formal action has been taken by the European Union. But we have made clear that if a move like this is taken, it will hurt the European Union. It will put thousands of European jobs in jeopardy and it has to be met by firm and proportionate response. Unlike these proposed US duties, our three tracks of work are in line with our obligations in the WTO. They will be carried out by the book. The root cause of the problem in the steel and aluminium sector is global overcapacity. It is rooted in the fact that a lot of steel and aluminium production takes place under massive state subsidies, and under non-market conditions. This can only be addressed by cooperation, getting to the source of the problem and working together. What is clear is that turning inward is not the answer. Protectionism cannot be the answer, it never is.”The EU remains available to continue working on this together with the United States.The EU has been and remains a strong supporter of an open and rules-based global trade system. (For more information: Daniel Rosario – Tel.: +32 229 56185; Kinga Malinowska – Tel: +32 229 51383)
BoC stands pat, maintain tightening bias but sounds cautious
Bank of Canada kept overnight rate target unchanged at 1.25% as widely expected.
Some highlights of the statement:
- Trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks.
- The Bank continues to monitor the economy’s sensitivity to higher interest rates.
- Inflation is running close to the 2 per cent target and the Bank’s core measures of inflation have edged up, consistent with an economy operating near capacity.
- Wage growth has firmed, but remains lower than would be typical in an economy with no labour market slack.
- While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target.
- Governing Council will remain cautious in considering future policy adjustments, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.
- Full statement here
There was no elaboration on NAFTA negotiations nor risk of trade war. BoC maintained tightening bias but sounds very cautious.
USD/CAD is steadily in consolidation from 1.3000 temporary top.
ADP 235k beat expectation 200k, USD/JPY slightly higher
USD/JPY slightly higher as ADP job report beat expectation.
ADP Feb: 235k vs exp 200K vs prior 244k
But it remains to be seen if USD/JPY could sustain gain.
EU draft Brexit negotiation guidelines reject “mutual recognition”
European Council President Donald Tusk is putting forward a draft of Brexit negotiation guidelines. The 6-page document was leaked to Politco. A point to note is that the document rules out UK Prime Minister Theresa May’s proposal of “mutual recognition” of standards.
It notes that “trade in services … to an extent consistent with the fact that the U.K. will become a third country and the [European] Union and the U.K. will no longer share a common regulatory, supervisor, enforcement and judiciary framework.”
Another point is that financial services is not included in the trade agreement. This certainly disappoints Chancellor Philip Hammond who has been pushing to include it.
Also, the “the European Council has to take into account the repeatedly stated positions of the UK, which limit the depth of such a future partnership. Being outside the customs union and the single market will inevitably lead to frictions.
Euroarea Q4 GDP finalized at 0.6% qoq, unrevised
Euroarea (EA19) Q4 GDP: 0.6% qoq, 2.7% yoy, 2.3% over 2017
EU28 Q4 GDP growth: 0.6% qoq, 2.6% yoy, 2.4% over 2017
In Q4, Estonia ranked top at +2.2%, followed by Slovenia at +2.0% and Lithuania at +1.4%
Greece and Croatia were both at bottom at +0.1%, followed by Italy and Latvia at +0.3%
Regarding the components:
- EA19: Household consumption expenditure +0.2%, gross fixed capital formation +0.9%, exports +1.9%, imports +1.1%
- EU28: Household consumption expenditure +0.2%, gross fixed capital formation +0.9%, exports +1.7%, imports +1.3%
IMF Lagarde: Trade war find losers on both sides
IMF Managing Director Christine Lagarde on trade wars:
- “The macroeconomic impact would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe, and Germany in particular.”
- “In a so-called trade war, driven by reciprocal increases of import tariffs, nobody wins, one generally finds losers on both sides.”
- “There are some countries in the world that do not necessarily respect the World Trade Organization’s agreements, and which impose technology transfers. China is a case in point, but it is not the only country with such practices.”
Trump signed tariff proclamation but backed down from no exemption position
Trump finally signed the proclamations of 25% steel and 10% aluminum tariff yesterday. The new tariffs will take effect in 15 days. He said in the White House, surrounded by steel and aluminum workers, that “we have to protect and build our steel and aluminum industries, while at the same time showing great flexibility and cooperation toward those that are really friends of ours,”
But he backed down from his original position of no exemption. As Canada and Mexico are exempted, pending NAFTA negotiations outcome. And he opened the door for reduction in tariffs for countries that “treat us fairly”.
Trump added “I’ll have a right to go up or down, depending on the country, and I’ll have a right to drop out countries or add countries.” And, “we just want fairness. Because we have not been treated fairly by other countries.”