Eye-Opener: the US dollar takes a breather, ECB purchases on track, Greece gets more ELA liquidity

The EUR/USD hit 1.05 yesterday triggered profit-taking and a bounce back above 1.06. As of this morning the EURUSD has crept just below 1,06. US treasury yields didn’t see much action with the 10-year close to unchanged at 2,117%.

The S&P 500 rose 1,3% closing at 2.065,95. The rise is the largest in a month, and defied disappointing retail sales numbers. Even in Japan we saw the Nikkei 225 closing above 19.000, which has not happened since April 2000.

From Monday to Wednesday, the ECB bought bonds for EUR 9.8 bn with an average maturity of nine years “on track with the target”, said ECB executive board member Benoit Cœuré. ECB officials and the Bundesbank played down concerns that it will be hard to find enough securities to buy. Still, we think finding sufficient Bunds can be a problem given the restrictions the ECB imposed.

Data came in on the weak side. Industrial production in the Euro area declined by 0.1% m/m, confirming the view that this sector will not be a major growth driver.

US retail sales were significantly weaker than expected. Part of the weakness might be due to bad weather and softness in retail pricing. Meanwhile, the drop in initial jobless claims to 289k points to ongoing strength in the labour market. We continue to think that markets are underpricing the extent of Fed tightening.

Day ahead

Very few things are on the macro agenda today. No market-moving data out of Europe.

US: With the intense focus on inflation expectations, University of Michigan’s consumer survey should be monitored closely. In February 5-10Y inflation expectations slipped to 2.7% from January’s 2.8%.

We expect the Russian central bank to keep policy rates unchanged after the 200 bp cut in January. That said, the probability of a further cut is certainly not zero.


The most interesting interest rate movements yesterday were seen in the euro swap space. We saw huge intraday movements where euro swap rates initially fell markedly. The 50-year point on the euro swap curve was actually below 1% for a brief period of time, but ended the day above 1%. A similar picture could be observed for 30-year swap rates.

In the euro government segment we are back to an almost classical phenomenon after a few days of bonds rallying. The 10-year bond yields in the periphery continued to fall, while we in core/semi-core bonds saw yields rising 1-4bp, with the German up 4bp.

Greece was until yesterday the only country which hadn’t seen any benefit from the ECB starting its QE. But apparently according to newspaper headlines the ECB has increased the Emergency Liquidity Assistance (ELA) to Greece with almost EUR 600m. This resulted in large falls in Greek government bond rates; the 3-year was down 85 bp, 5-year down 42 bp and the 10-year down 18 bp.

The four day US treasury rally came to a halt leaving government bond yields up 0,5-1 bp across the curve. This mirrors the development in Europe, and we suspect the flow is driven by European investors.


The US dollar takes a breather. EUR/USD hitting 1.05 yesterday triggered profit-taking and a bounce back above 1.06. Weak US retail sales did not do the US dollar any favours. With only the Michigan index on the agenda today any big move looks unlikely. Risk seems to be for more profit-taking, but we still expect a bounce in EUR/USD to be met by renewed selling interest. Choppy trading activity expected ahead of next week’s FOMC meeting.

SEK falls back after strong performance. EUR/SEK hit 9.06 early Thursday, but profit-taking brought it back above 9.15. Swedish unemployment data left no noticeable mark on the SEK and the Swedish calendar is empty today and until consumer confidence data on 25 March. Ahead of the weekend expect consolidation within the 9.10-9.22 range.

NOK still range bound. Friday will provide no fresh Norwegian news. Hence, EUR/NOK is set to trade within a narrow range well inside this week’s trading range of 8.50-8.70. Oil is off this week’s low at USD 56 and as long as that is the case, expect EUR/NOK to move sideways ahead of next week’s important rate meeting of Norges Bank.

RUB is a tad firmer ahead of today’s rate meeting of the Russian central bank. USD/RUB slipped back below 61 and the cross is back at levels seen in the early week before the move to 63 Wednesday. If the Russian central bank springs a surprise once again (as it did in January by cutting by 200 bp) it will be positive for the economy and should thereby be positive for the rouble.