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    Asian session – euro searching for equilibrium post-ECB, yen down as oil helps risk-on

    The euro was still searching for new equilibrium levels following the ECB action the previous day, as it backed off the 1.12 level it crossed during the previous day’s US session to trade around 1.1130.  The low registered after the announcement of the ECB stimulus measures was 1.0820.

    Although the measures announced by Draghi were much more than what the market anticipated –especially the increase in the monthly QE purchases and the expansion of the program to cover non-bank corporate bonds- the statement that further easing in rates was not anticipated, reduced the positive effect of the stimulus announcement.

    An alternative explanation is that the ECB’s unexpectedly big stimulus package hints at panic at the world’s second largest central bank.  It was certainly a very big change from what was announced in December.  As the QE program has been running for over a year now and in its reinforced form is still unlikely to prevent inflation from falling in 2016, many are questioning the effectiveness of such measures.  Despite official pronouncements to the contrary, markets may also be concerned that central banks such as the ECB might be running out of ammunition.

    In other news, US crude oil traded at a near 3-month high, close to $39 a barrel at $38.81.  This helped other risk assets to also gain, as S&P 500 futures showed the US benchmark rising once more above the key 2000 level and the Eurostoxx 50 was expected to regain some of the previous day’s losses.  The gains in risk assets had a negative effect on the Japanese yen, as the currency retreated against all its major counterparts.  The US dollar looked to be heading towards the 114 level against the yen at 113.80, while the euro was at a 3-week high of 126.70 yen.  Sterling and the aussie also gained versus the yen.

    Higher oil prices helped the loonie push the US dollar back to the 1.3260 level, while the aussie also recovered to the 75 US cents level after trading as low as 0.7426 the previous day.  On Wednesday, the aussie hit an 8-month high of 0.7528.

    Looking ahead, traders will look to UK trade balance and construction output as the main data releases out of Europe.  Later in the day, the Canadian employment report for February will attract attention.  During the weekend a series of Chinese data will come out such as industrial production, fixed asset investment and retail sales, which could be market-moving news for next week.

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