The Euro was weaker, but bloodshed was initially stemmed after Mr. Draghi claimed that Cyprus is “no template” in the Q&A session. EURUSD awaits a decision either side of 1.2750 and 1.2880. The market at first sold Euro’s hand over fist after the ECB statement. I’m not so sure that this is in reaction to anything Mr. Draghi actually said as much as it is a backdrop of yet another lousy US data figure (worst US jobless claims this year at 385k) feeding into risk off as well as the somewhat hopeless task set for Draghi coming into this meeting in the first place: the challenges are political at their root in Europe. Mr. Draghi said that central bank can’t compensate for government inaction – which should remind us of the ECB’s awkward position.
Still, Mr. Draghi was very downbeat on the downside risks to the economic outlook in the near term and the language on inflation suggests that a rate cut is much more likely at the next meeting. He also says that policy will stay accommodative as long as needed.
So from here – let’s see if 1.2750 breaks – the sell-off has been an ugly slide as the US recovery story has faltered while the EU has also been dragged through the mud by the Italian election results and then Cyprus. The bulls need to take back that 1.2880 area to get any decent technical argument for upside now. Mr. Draghi tried to underline that Cyprus is “absolutely not a template” and this helped provide a bid in the Euro after the meeting and quickly slowed the Euro bleeding.
Chart: EURUSD
EURUSD posted a marginal new low today, but that quickly reversed – so going into tomorrow’s US employment report, we await either a break of the emphatically important 1.2750 support or the 1.2880/1.2900 topside resistance and 200-day moving average.
Elsewhere, Spanish and French bond auctions today were very strong and the Bund benchmark yield crossed below 1.25% for the first time since last summer. Mr. Draghi did mention that measures to support credit to SME’s were discussed when asked directly about that subject, but no details were forthcoming, though he did say the ECB would continue to think about the subject.
SAXO BANK