Draghi and Co. fail to live up to market's dovish expectations to send the EUR soaring

Price action today was almost entirely dictated by the ECB with the rate decision being considered one of the most important of the year. Heading into the decision, EUR/USD reached fresh multi month lows and fell below 1.0550 amid speculation that the central bank would continue their recent trend of over deliver. However EUR went on to see substantial strength just ahead and then in the wake of the decision, initially gaining off reports from the FT that the central bank were set to surprise markets and keep rates on hold.

EUR went on to strengthen further over the following hour after the ECB announced a 10bps cut to the deposit rate cut, with main refi and marginal lending facility being left on hold. Many participants had considered a 10bps depo rate as a base case, with some speculating that the ECB could be even more aggressive in their easing. At president Draghi’s press conference he announced that the ECB are to extend the length of their QE program and include local and regional bonds, however crucially failed to announce an expansion in the monthly size of the program and as such saw EUR extend on its gains to regain the 1.0800 handle and trade higher by over 2 points.

In terms of other news, price action has been fairly light, with a number of US tier 1 data points shrugged off by participants such as Factory Orders (1.50% vs. Exp. 1.40%), ahead of tomorrow’s nonfarm payroll report. Other highlights tomorrow include Australian retail sales, German factory orders, Canadian unemployment data a number of ECB and Fed speakers as well as the biannual OPEC meeting.