Little euro weakness after Constancio's comments about ECB easing

Market Review

Yesterday’s session was relatively lacklustre as it was the first Monday after the release of the most important data of the month out of the US, Non-Farm Payrolls. The number itself was better than expected, and combined with an upward revision from the month before a doji in the S&P might have been expected as traders try to work out just what is going on. The positive data goes against most data that has come out of the US as of late, and means the Federal Reserve with no doubt will continue to taper $10 billion per month. A bad number may have halted tapering, or if very low may have even have even increased stimulus. With the Dax selling off, this may be a clearer sign of direction the next few day’s. The immediate sell off in US10Y on Friday was retraced to the 50% handles yesterday, though this has only served as the top of the range. Crude oil surprisingly went bid on Friday, though retraced all of its gains yesterday. The EURUSD strategy short was obtained at 1300GMT as we just came up to test the entry. It was a difficult hold, though as we did not have any momentum the position was exited at an average of 14 ticks profit.

Today's Fundamental View

This morning has seen the market move slowly, with no real movement in any other assets but the EURUSD where we have seen some euro weakness after the ECB dove Vitor Constâncio said the markets had misinterpreted the bank, commenting that they may still cut rates and implement quantitative easing or buy assets. Immediate reaction was a move down to the low of the day, about 10 pips, though after this initial sell it tool the market some 2 hours to move another 20, indicating there is no dramatic news in what he was saying as he is such a well known Dove. China posted overnight CPI numbers showing the inflation is at its lowest for 13 months, indicating that any downturn in the Chinese economy may be offset by policy changes without having to worry about an overheating economy. On the face of it the number does not say much about the state of the economy as yesterday’s export number did, rather it shows us that it can be “easily mended”. BHP Biliton and Rio Tinto offset some of the bad jitters we got from the export numbers yesterday by commenting that the expected production peak in 2025 remains unchanged as far as they are concerned. The Ukrainian situation continues, and the Crimea governing counsel which consists of 80% ethnic Russians have officially asked to be annexed by Russia. Ukraine as a whole is on the back foot trying to fend off the “red army” without the use of force, as the country would suffer massive defeats if the situation escalates beyond the use of words and fear. Many are now calling Putin out as having ambitions to rebuild what was previously the Soviet Union. The strategy today will remain along the same line as yesterday, with short positions across the board.

Alternative View

Dovish comments from monetary policy makers or Chinese officials may adversely affect the markets.