EUR/USD: 1.2180
If it was volatility that you were after, then the FX market was the place to be following the ECB decision that left interest rates unchanged at 0.75%. It was the Press Conference though that goaded the market into action and Mario Draghi left the markets largely disappointed with the lack of any follow through to last week's statement "to do whatever is necessary to bolster the EU". Despite him saying that the ECB will come up with ways to support the EU, there was nothing concrete in his statement to provide any immediate stimulus and a very quick spike to 1.2405 was followed by an equally swift decline back to 1.2170. He said that the ECB will draw up plans in coming weeks to purchase bonds in order to stabilise the Euro and also made an appeal for high yields in the likes of Spain and Italy to come down, using a convoluted logic, in which he stated that yields are too high because the market is concerned about the breakup of the Euro, and since this is an impossibility, yields should therefore be lower! Needless to say, Spanish bond yields immediately went in the opposite direction, driving up from 6.65% to 7%, while the Italian 10 years headed to 6.2% from 5.75%.
Equities didn't like it at all, with the DAX closing -2.15%, EStoxx50 -2.87%, Spain -5% and the S+P -0.62%.
So the Euro was all over the place, although most of the volatility was seen in the minutes immediately after the statement. Following the high of 1.2405, we have been down to a low of 1.2133, with the last few hours more or less confined to a 50 point range, while the blood is swept off the floor in preparation for the upcoming US data.
The market has now moved along from the ECB and will focus on the US/NFP unemployment data later on today where expectations are for an increase of 100k, following the previous reading of 80k. Given that the ADP reading yesterday was better than expected, a good reading would probably again delay any hope of QE3 in the months ahead and would send the dollar to higher ground.
The Euro, for its part, remains a pretty mixed picture. The 4 hour charts are pointing strongly lower and it may well be that we see a retest of the session lows, and beyond there to minor support levels at 1.2115 and then at 1.2080 and 1.2065. Beyond this lies last week's 1.2042 low and then 1.2000, which I am not sure that we are ready for yet. The daily charts are yet to turn lower and thus I suspect we have some more choppy trade in store and would be looking for 1.2120/1.2220 to cover it. Further gains to the topside looks to be difficult, given how the short term momentum indicators are pointing lower and seller will now be found at points north of 1.2220.
It looks like being a quiet run into the NFP today and for the next 18 hours I would not be looking for too much excitement. We do get the EU Services PMI and Retail Sales before then, which may provide some mild excitement.
