A key catalyst for the risk averse trade on Thursday was the latest daily liquidity update from the ECB, wherein deposits, unsurprisingly, fell dramatically to EUR 324.9bln following the central bank’s cut to zero-deposit rates. The move by the ECB to boost credit flows and lending has slipped at the first hurdle, as the fall in deposits is matched almost exactly by an uptick in the ECB’s current account. As such, it is evident that the banks are still sitting on their cash reserves, reluctant to lend, as the real economy is yet to see a boost from the zero-deposit rate. As expected, the European banks’ share prices are showing the disappointment, with financials one of the worst performing sectors, and CDS’ on bank bonds seen markedly higher. As a result, the pair continued to trend lower and by the closing stages of the session was trading firmly below the key 1.2200 mark. In terms of technical levels, supports are seen at 1.2151/32 and then at 1.1985. On the other hand, resistance levels are noted at 1.2297, 1.2334 and then at 1.2365.
There was little in terms of UK related macro economic news flow and as a result the pair continued to derive its price action based on that of EUR/USD. In turn, given the never-ending concerns surrounding certain member states in the region, meant that the pair trended lower for much of the session. In terms of technical levels, supports are seen at 1.5404, 1.5375 and then at 1.5322. On the other hand, resistance levels are seen at 1.5519/78 and then at the 21DMA line at 1.5597.
The pair settled the session lower after the BoJ have held their target rate unchanged at 0.10%, alongside expectations and maintained its view that the Japanese economy is gradually picking up, pointing towards solid domestic demand as a spur for growth countering the need for additional stimulus. Furthermore, the total size of the BoJ's asset buying and lending program is unchanged at JPY 70trl, however the bank has made a technical revision to the scheme, and are to increase the buying of short-term securities by JPY 5trl while reducing the amount it offers under fixed-rate market operations by the same amount.