ECB hawks brought back to earth as Draghi changes nothing

ECB hawks brought back to earth as Draghi changes nothing. EUR test of 1.0950 falters again. GBP outperforms, but 1.2920 contains Cable. CAD cannot catch a break as Oil slips again. US, Canadian and UK GDP all out tomorrow.

Any hopes that the ECB were going to hint at tweaking their monetary policy were dashed today, despite reports (stories!) that this might be the case in light of the Macron win (in the first round vote in France) on the weekend.  Not only did president Draghi reiterate that policy decisions do not account for politics – and again, Macron has won nothing yet -  but at the press conference he also echoed comments that there is no need to discuss sequencing, ie hiking rates before the end of QE.  Prior to this, he did however cite the positive economic factors feeding through, but the governing council are not convinced that inflation is back on track yet.  

The initial positivity sent the lead EUR/USD higher in the initial exchange, pushing the earlier highs, but still the 1.0950 level cannot be breached.  That said, the longer term market players will get ‘ahead of the game’, and we sense there is an underlying bid in the single unit, though perhaps at lower levels.  1.0850 held on the dip, and we note strong demand into 1.0750 lower down, which will be tested if the US GDP numbers beat expectations on Friday. 

This is the major event risk going into the last day of the month, which will be fraught with real money flow pointing to some potential volatility ahead.  Looking at the median forecasts for Q1 GDP stateside, some of the revisions by the major banks suggest this may be a little optimistic, so we have ‘room for movement’, and in in USD/JPY specifically, which has been notably quiet since the dip back from the upper 111.00’s.  Strong resistance seen ahead of 112.00, but this will be tested on strong US growth.

Japanese inflation data overnight shows little sign of producing any excitement from the JPY perspective, with sluggish pick up maintaining the accommodative stance which the BoJ are consistently reminding us of.  Mar industrial production, unemployment and household spending also due out.

USD/CHF could also see some movement, having seen little volume based on the price action seen, but this is largely down to SNB presence as traders are loathe to get caught in any pre-emptive EUR based ‘operations’.  EUR/CHF is dipping lower again, but nothing anticipated until the low 1.0700’s. 

Q1 GDP stats also due out in the UK Friday morning, and in light of the latest gains seen in the Pound, we have a potential profit taking bout as the recent date run has shown activity fading a little.  We also have to contend with EU based supply in EUR/GBP, but this will have been transacted in stages through the week.  The cross rate has yet to fill the gap from last weekend, but has been eating into this today in the wake of the ECB ‘presser’. Lows seen ahead of 0.8400, but a test under the figure looks likely.  EUR/USD has a big figure to go before it closes its respective gap.

GDP data in Canada covers Feb, but the market will be looking for some momentum after Jan’s strong +0.6% read. Working off averages, consensus here is for a more modest +0.1% rise this time around, which may curb some of the CAD weakness which does not seem to be fading in any way.  Overnight we saw president Trump taking a more moderate tone on NAFTA and agreeing to negotiate rather than withdraw from the accord, having met with both counterparts Trudeau and Nieto. 

However, there are plenty of weak points to the CAD at present, and Oil price is naturally one of them as another drop in WTI and Brent sends the spot rate back above 1.3600 again.  Calls for 1.4000 may not look out of place, but local names and longer term specs will find value in CAD at these levels. 1.3675 is still a level we are watching, but through here sees 1.3800-50 next.

Also in the overnight session we have ANZ business confidence and NBNZ activity indices in NZ, with credit data and PPI in Australia. Both the AUD and NZD have lost ground against the greenback in recent sessions, but the pace of losses have been pretty measured as the underlying domestic factors have been unconvincing.  As such, moves have been broadly risk and USD based, so we are wary of a potential/partial turnaround in the near term.