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Hawkish ECB Surprise Fails To Sustain Initial Euro Bullishness

FOREX
  • The larger-than-expected 50bp rate hike from the ECB sparked solid short-term demand for the single currency, however, this price action was short-lived and EURUSD then reversed aggressively to the lows of the day before consolidating throughout the US session.
  • In the lead up to the press conference, the hawkish surprise took EURUSD to the best levels of the week, printing 1.0278. This was 5 pips above Wednesday’s high and coincided with a weaker US Philly Fed datapoint.
  • Instead of the breach sparking some momentum buyers, Euro optimism quickly faded as markets attempted to grapple with the details surrounding the new Transmission Protection Instrument (TPI), announced by the central bank.
  • With Euro bulls rapidly losing faith, the path of least resistance was lower and EURUSD quickly found itself trading below pre-rate announcement levels with one eye on the daily lows. Sure enough, the pair fell close to another half a percent, with 1.0154 marking the day’s low. Interestingly, E1.8bln worth of expiries between $1.0200-10 was a strong enough magnet to drag the pair back up approaching the NY cut where the pair seemed comfortable consolidating as the dust settled.
  • Overall, currency markets remain close to Wednesday’s closing levels with whipsaws in the Euro largely being mirrored by the USD index. Slight outperformance has been seen in the JPY and CHF, both rising 0.35% amid an underwhelming day for commodities/risk.
  • European Flash PMI’s will be in focus on Friday, as market participants look for further signals of weaker economic to start the third quarter. The UK and Canada both report retail sales data.
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