Volatility was the name of the game in the NY session and EUR was where the price action was. The European Central Bank cut rates by the anticipated -25 basis points to 1.0%, but the real reaction came on the back of ECB President Trichet's press conference. Trichet noted that the bank is prepared to buy up to EU60 billion in covered bonds (similar to mortgage-backed securities) to support credit markets.
Traders initially took the quantitative easing comment perhaps expecting a larger size and sold EUR/USD down to an intraday low of 1.3252. When the size was announced, the pair promptly shot up towards the 1.3470 highs (just shy of the 200-day moving average). The EU60 billion amount is a drop in the bucket when compared to QE efforts in the US and UK and so it was deemed less dilutive to the currency.
Post-ECB, EUR began its recent behavior of trading in tandem with ''risky'' assets. US equities dropped sharply as ostensibly nobody wanted to be long the market ahead of the looming (and ultimately anti-climatic) bank stress tests. The S&P found support ahead of the 900 level and managed to close down a ''modest'' -1.3%.
Oil was tossed around with the risk on, risk off action. The commodity ran up to new 2009 highs above $58 but eventually closed flat on the day just below the $57 mark. This left USD/CAD 50 pips higher in the session near the 1.1700 level and AUD/USD about -50 pips lower by 0.7540 to boot.
Nothing major in terms of economic data now in the Asia session, thus we would look for FX to continue to trade along with stocks. If Asia shares take the ''as expected'' stress test news well, we would look for a potential resurgence in EUR and the JPY crosses. This could open up a good selling opportunity ahead of tomorrow's NFP number.
Upcoming Economic Data Releases (Asia Session) prior expected
- 5/8 1:30 GMT AU Reserve Bank Quarterly Monetary Policy Statement
