EUR short-covering across the board

Going into the ECB meeting, EUR short covering/buying played through across the board, with all counterparts losing ground against the single currency in anticipation of a less dovish ECB press conference. The market was not disappointed. The main takeaway was president Draghi revealing that the governing council considered removing the phrase ‘lower levels’ in reference to interest rates, while there was no discussion on a new TLTRO program. They also omitted the reference to using all available instruments, but did highlight the fact that traction in underlying inflation is questionable due to the pass through in energy costs. This may well come into question on the latest fall in Oil prices.

EUR/USD traded up through 1.0600, but gains – vs the USD – were expected to come up against stern resistance as the greenback is very much on the front foot across the board. However, certain crosses were an obvious attraction for those looking to express near term EUR outperformance, with EUR/GBP piercing 0.8700 and EUR/CAD extending gains through 1.4300 on the above Oil price losses. Respective losses in Cable and USD/CAD followed, with the former still looking to test 1.2100 on the downside, while the CAD rate has taken out 1.3500 to eye a move on the key 1.3600-75 resistance zone higher up.

Canadian payrolls are also on the data schedule for tomorrow – the market looking for a modest 2.5k gain - but ahead of this comes the UK manufacturing stats, which could pile on the pressure on GBP given the PMI data out last week.

For USD/JPY, consistent buying is in anticipation of the non-farm payrolls release backing up the strong ADP report midweek. Consensus expectations at the start of the week were around 175k up, but have since been upgraded to circa 195k, but as ever, there will be as much emphasis on the average earnings data. 115.00 continues to fend off demand, but with US Treasury yields on the front foot, and eventual breach looks inevitable, but 115.50 will prove just as tricky to negotiate.

As the fall in WTI has led to further losses in CAD (and Brent on NOK), ongoing losses in base metals have led to a further hit on AUD, with the spot rate taking out 0.7500 but with limited momentum as yet. We note plenty of congestion levels through the 0.7400’s, and given the pre-emptive USD buying ahead of tomorrow’s data, and indeed next week’s FOMC, we may see losses slow from here, just as they have in NZD. The NZD/USD dip under 0.6900 has been pretty shallow as yet, but AUD/NZD continues to look well supported below 1.0900 to suggest further weakness ahead.