ECB as Expected; Markets lower on soft earnings, Oil, Manufacturing
Following three days of decent gains in risky assets, markets reversed yesterday on back of uncertainty about global outlook and a drop on oil. Currencies were fairly range-bound and fixed income yields pushing slightly higher, but nothing significant. The big event yesterday was the ECB meeting, where the interest rate and deposit facility were kept unchanged as markets expected. EURUSD pushed higher ahead of the announcement, but reversed at the 1.14-figure and closed lower. Draghi commented that the risks for the outlook remains to the downside and that the ECB is ready to act, should the outlook deteriorate. As hinted previously, details on the CSSP (Corporate Secter Purchase Programme) were announced, showing a relatively transparent setup. From the US, the weekly jobless claims came out at multi-decade lows at 247k, well below expectations. Despite the positive news from the labour market, the reaction was offset by soft figures from the US manufacturing sector and weak company earnings. Overnight, the bearish mood on risk continued, despite a weakening JPY on back of speculation that the Bank of Japan will announce a negative loan facility.
Ahead of the weekend, the calendar is quite soft with PMIs from Europe and Canadian CPI as the main events.
The PMIs from the Euro Zone all came out below expectations, but remained above 50, which signals that there is expansion in the sector. The EUR has generally been on the offer so far in this session, except against the JPY. EURUSD printed weekly highs yesterday ahead of the ECB, but closed lower with a long upper candle on daily, showing that heavy offers kicked in post the ECB. 100-day MA is close to breaking above the 200-day MA, which could provide some support. EURGBP looks to drop for the second week in a row and is currently testing the 50-day MA and 23.6% Fibo retracement in the recent wave, where a close below would open up for a test of 0.7830 and then 0.7790.
In the afternoon session, focus will be on the March Canadian CPI and February Retail Sales. Both figures are expected to ease a tad due to the recent appreciation of the Canadian dollar, which will hit exports. This could however trigger an upside surprise in headline inflation. The CAD has been highly correlated to oil and the increase in oil prices have also been reflected in recent CAD strength. USDCAD bounced off last Fibo retracement in the 2015 lows – 2016 highs wave on Wednesday, due to a build in inventories, but should Canadian figures surprise to the upside, we expect the pair to reverse lower.
Have a nice weekend!
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