All Eyes on ECB

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Market Drivers April 10, 2019
UK GDP beats
Market waits for Draghi
Nikkei -0.53% Dax 0.38%
Oil $65/bbl
Gold $1304/oz.

Europe and Asia:
UK GDP 0.2% vs. 0.0%

North America:
EUR ECB Presser 8:30

FX rates were steady in Asian and early European trade today with only Aussie making a large turnaround move today after relatively less dovish comments by deputy Governor Debelle.

The AUDUSD reversed its decline towards .7100 popping back above the .7150 level by mid-morning London dealing after RBA Deputy Governor Debelle stressed the better than expected labor market conditions and the orderly decline in prices in the housing market. FX traders who expected much more dovish commentary from Mr. Debelle quickly covered their shorts on the assumption that the RBA in unlikely to cut rates any time soon.

Still, it’s clear that the RBA is now clearly in an easing mode and should conditions begin to deteriorate further would act quickly to begin easing monetary conditions. For now the recovery in Chinese data as well the buoyant labor market demand will keep RBA neutral for perhaps several months more, but Mr. Debelle clearly hinted that policymakers are data dependent and open to a shift in policy making the next several data points including this month’s employment report key to the near term direction of the Aussie.

In Europe, FX held steady ahead of the ECB presser later today as well Theresa May’s visit to Brussels where the EU is expected to offer UK a one-year extension on Brexit. That would be seen as positive by the market and could tap pent up demand in UK as consumers get a sense of relief regarding any immediate dangers to trade, but it could also create greater political risks for PM May as she faces a revolt among Brexiteers.

UK data printed better than forecast with GDP coming in at 0.2% versus 0,0% but the headline was less bullish than it appeared as most of the gains came because of stockpiling. Still, the data suggests that UK economy remains remarkably resilient despite the Brexit turmoil and any extension today could provide a lift for the pound taking the pair through the 1.3100 figure as the day proceeds.

The focus today, however, will be on the ECB presser at 12:30 GMT. The market will be keen to see if Mr. Draghi and company offer any further easing measures given the sharp slowdown in EZ activity. Markets are anticipating no new changes in policy in the statement, but will be eager to see how Mr. Draghi responds to questions about new rounds of TLTRO as well possible tiering arrangements for interest rates that would try to mitigate some of the adverse impact of negative rates while at the same time trying to stimulate credit creation in the region.

The EURUSD has managed to hold above key support of 1.1175 and unless Mr. Draghi shocks the market with unexpected news it may simply trade in current ranges post event as much of the negative news has already been priced in and the pair appears to have strong support at these levels.

Boris Schlossberg
Managing Director

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