Gearing Up for ECB

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Market Drivers April 27, 2017
BOJ keeps rates on hold
NAFTA stays
Nikkei -0.19% Dax -0.26%
Oil $49/bbl
Gold $1265/oz.

Europe and Asia:
JPY BOJ Keeps policy unchanged
EUR Business and Consumer sentiment 109.6 vs. 108.1

North America:
USD Trade Balance 8:30
USD Durable Goods 8:30
EUR ECB Presser 8:30

Currencies were calm and steady and did not react much to a generally unchanged statement from the Bank of Japan in quiet Asian and early European trade as markets geared up for the ECB press conference later in the day.

The one exception was the Canadian dollar which spiked higher in the wake of a late night announcement from the Trump Administration that US intends to remain in NAFTA for now. The news helped to push USDCAD lower by almost 100 points but the pair found some support at the 1.3550 level and rebounded to 1.3575 in mid-morning London trade. The announcement was sigh of relief for loonie longs as the trade tensions between US and its biggest trading partner appear to have eased a bit and the long standing NAFTA framework remains in place for now. Given the Trump Administration’s penchant for protectionism, it is not at all certain if further flare ups will be in store and loonie remains vulnerable for the time being. USD/CAD has breached the top of its range and unless the pair comes back below the 1.3400 mark the near term trend suggests that the pair could push towards 1.4000 over the near term horizon.

In Japan meanwhile, the BOJ left the monetary policy unchanged and noted that inflation expectations remain weak. It did upgrade real GDP growth to 1.6% from 1.5% in January but overall the announcement produced no surprises and USDJPY remained in tight, narrow range above the 111.00 figure for most of the night.

In North America today, the focus will turn on the other side of the pond as the ECB holds its monthly presser. This central bank meeting is also expected to be a snoozer with President Draghi unlikely to offer any fresh information. The key focus of the market will be on whether the ECB decides to taper its QE program relatively soon, but given the very low rate of inflation in the region and the still considerable political risk, there is a good chance that ECB may remain open-ended with respect to QE and that could put some downward pressure on the pair. The EUR/USD has found resistance at the 1.0950 level and any dovish talk from Mr. Draghi could push it to 1.0800 figure as the day proceeds.

Boris Schlossberg
Managing Director

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