Posted on: 22 January 2016, by: Pepperstone Support, category: Market Review
A big day for Euro traders and risk overall as Draghi levels with the markets on the ECB’s plans going forward. Mario cautioned market participants on the heightened risks that stem from EM and commodity weakness and warned on the dampening of the overall inflation picture. It was pretty clear from the onset that the ECB stands willing and able to act in March if their inflation targets aren’t met, but given the resulting price action in EURUSD and lack of follow through, traders seem to be somewhat skeptical on the prospects for further action from the European Central Bank. Nonetheless, it was a typical dream day to run stops with the Euro collapsing from the 1.09 figure to post a session low of 1.0776 after the initial deluge of prepared commentary hit the wires. The single currency recovered nicely in the aftermath of the presser, adding to the overall cloudy price action in G-10 FX to close near 1.0870. If the tepid recovery in stocks starts to fizzle out, watch for euro to regain firmer footing against the USD and other crosses.
The major story today was oil. Today marked the biggest one day gain this year and helped commodity FX higher. It’s worth noting that the obscene build of 4.5 mio barrels yesterday seemed a distant memory, as oil had a look over $30. CAD was by far the biggest beneficiary, as the non-action from the BoC combined with the bid in energy prepped the loonie for a sharp 1.52% gain on the day. USDCAD traded as low as 1.4228, but crawled higher once the bid in equities began to lose steam. NZD and AUD were also broadly bid, up 1.46% and 1.45% respectively. What was confusing, however, was that EM remained broadly tied to the swings and misses in US equities. The wonky price action in S&P’s has been frustrating with the initial rally into 1890, helped along by the bid in oil and a dovish Draghi, cut short. The index ended up giving back close to half of the gains made intraday.
Davos made plenty of headlines today, but we think that commentary from Banxico’s Carsten’s was worth mentioning. He spoke about the need for EM central banks to increase their toolbox for liquidity. He also was fairly positive on the idea of market based interventions.
This is late breaking, but if you missed it, JPY pairs have gone on the defensive. Nikkei news has reported that the BOJ is mulling additional easing “amid economic uncertainty”. The article sites sliding oil prices as a massive weight on the banks 2% inflation target. The move took USDJPY from 117.55 to 117.86 in a quick move that dragged other JPY pairs higher.