EURUSD’s Volatility the last 2 hours

EURUSD, H1

U.S. December Markit manufacturing PMI jumped 1.1 points to 55.0 in the preliminary print after falling 0.7 points to 53.9 in November. It was at 54.3 a year ago. This is the highest reading since January. The employment component climbed to 55.7 versus 54.7 and is the beset going back to September 2014. Input prices also surged and are at the highest since December 2012. But, the services index dove 1.4 points to 52.4 after falling 0.8 points to 54.5 last month. It was 53.9 a year ago. This is the weakest print since September 2016. The employment index slid to 52.6 from 53.8 and is the lowest since May. The composite index also declined 1.5 points to 53.0 following November’s 0.7 point slip to 54.5, and it was at 54.1 last December. This is the lowest for this measure since March. Declines were also registered in employment and output.

EURUSD topped at 1.1862 following the ECB’s upgraded growth forecasts, though has since dropped back to 1.1799, during ECB press conference, however it bottomed back at 1.1794 on strong US PMIs.

The ECB presented during Q&As confidence in self sustaining inflation path and Draghi stressed that projections are going into the right direction. The ECB president was eager to highlight in the Q&A session that the main policy guidance hasn’t really changed and the key message is that while the central bank is increasingly optimistic on the growth outlook, it still maintains that an ample degree of monetary accommodation remains necessary. So the doves once again won out today, with Draghi not ready yet to commit to an end date for QE, or even hint as some council members have done, that in the central scenario the upcoming QE program will be the last. Investors are flogging back into peripherals on the comments, seeing Spanish and Portuguese 10-year yields down more than 4 bp, while Bunds are underperforming and the 10-year ups 1.3 bp amid a reversal of intra-Eurozone safe haven flows.

The persistently soft EU inflation outlook will keep the bank in “ample degree of stimulus is still needed” mode for the foreseeable future, which will limit EURUSD upside potential, especially as the Fed remains in tightening mode.