The dollar firmed up again in N.Y. trade on Thursday, despite higher than expected jobless claims, soft factory orders, and downwardly revised productivity data. The ECB meeting and press conference was the driver, where Draghi outlined the upcoming QE program. The bank upped its growth projections sharply as well, which were taken with a grain of salt by the FX markets. EUR-USD initially rallied into the press conference, as shorts were covered, peaking at 1.1114 before sellers stepped in again. The pairing eventually found a floor at 1.0988 before reclaiming the 1.10 handle on intraday short covering. USD-JPY rallied to 120.43 highs ahead of the ECB, though was later dragged down by a wave of EUR-JPY selling. Cable and the CAD were kept down, largely on the weight of a broadly weaker EUR-USD.
EUR-USD fell back to N.Y. session lows of 1.1007, from highs of 1.1114, with some eyebrows in the FX market being raised by the ECB’s ramped up growth projections, and comments the ECB will buy negative yield bonds, which saw bund futures rally. The 1.1000 level will be key for the pairing, with option barriers noted at the figure. EUR-USD later broke through the level, trading to lows of 1.0988, and extinguishing barrier options noted at the figure. With the pairing in nearly uncharted territory, few will be willing to pick a bottom, though with QE on tap now, continued test of the downside appears the most likely, with the only caveat being the market is currently seen as well short of euros.
USD-JPY was pressured lower after the ECB press conference, trading back under 120.00 from highs over 120.40, with EUR-JPY selling being the major driver. The cross crashed from 133.59 to lows of 132.11 over a short period, finding support just under the previous London low of 132.15, which was the lowest in over a month. As the cross stabilized, and the dollar overall maintained its bid tone, USD-JPY turned back over 120.00.
EUR-GBP logged a fresh seven-year low amid fresh euro underperformance, while the pound has traded lower against both the dollar and yen. Sterling lost some of its shine following sub-forecast Halifax house price data and yesterday’s services PMI miss. The unchanged BoE announcement didn’t have market impact. The minutes to the MPC meeting will be published on Mar-18, which we expect will show that the BoE isn’t in any immediate rush to tighten policy.
EUR-CHF slipped to 1.0670 from near 107.10 after the euro slipped broadly following the ECB meeting, though losses were more than made up later in the session, as the cross rallied over 1.0740. The move up was likely positioning related, and we expect with ECB QE getting underway, EUR-CHF will remain under pressure. The Feb-18 high at 1.0810 and the 1.0500 level, which is the alleged “soft floor” of the SNB, looks likely to mark the boundaries of a new trading range for EUR-CHF in the months ahead, though we think the risks are skewed for more euro losses as the ECB QE program gets under way, which will likely test the resolve of the SNB.
USD-CAD made its way to 1.2510 highs, up from near 1.2435 at the open. The modest rally came with a generally stronger USD, while oil prices moved off their best levels, trading back under $ 51. The improved Ivey PMI outcome had little impact. Good support remains at 1.2400, which aside from a few dips underneath, has been a solid floor for more than a month now. The BoC outlook is much more stable now, with no policy changes seen for the foreseeable future, so focus may return to the oil market, where the jury is still out on whether or not prices have bottomed.