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Euro Plummets As ECB Bides Their Time, DXY Soars

FOREX
  • With no change in ECB policy rates nor the APP purchases schedule, markets were underwhelmed by the governing council’s commitment to optionality, gradualism and flexibility. As such, the Euro came under heavy pressure following both the statement release and price action extended throughout Lagarde’s press conference.
  • This translated into EURUSD giving back the entirety of Wednesday’s advance and breaching the key 1.0806/09 support area and bear trigger for the pair. Additional headwinds arising from higher US yields and a firmer dollar index prompted the pair to make fresh 23-month lows at 1.0758.
  • After the dust had settled the euro caught a late bid on an ECB sources story suggesting the governing council could still raise its interest rates in July, but policymakers agreed at a meeting on Thursday to keep their options open. EURUSD found relief from around 1.0775 to 1.0815 on the comments and is roughly where we reside approaching the long Easter weekend.
  • As mentioned, the greenback performed well on Thursday overall, evident by the DXY (+0.65%) firming to fresh cycle highs at 100.76. This led the majority of the G10 complex lower with AUD, CAD, GBP all falling around half a percent but CHF the notable laggard, retreating 0.8%.
  • Similarly, the firmer dollar and higher US yields weighed on the emerging market basket with the JPMorgan EM CCY Index falling 0.5%, led by MXN losses of around 1.00%.
  • Despite widespread market closures tomorrow, US Empire State Manufacturing Index data is on the schedule. Focus then turns to Chinese growth data out early on Monday before another set of European holidays may keep impact overall market liquidity.
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