Markets on Pause – ECB Ahead

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Markets on pause ECB Ahead
AU data mixed
Nikkei 0.36% Dax -0.34%
UST 10Y 0.75
Oil $37/bbl
Gold $1704/oz
BTCUSD $9629

Asia and the EU
AU Retail Sales -17%
AU Trade Balance 8.BB vs. 7.5B

North America Open
ECB Presser 8:15
USD Jobless Claims 8:30

After strong rallies this week, markets took a pause today with price action in equities and FX decidedly more muted as US futures were slightly lower by 20 basis points and risk FX was moribund as well.

Traders were looking to the ECB presser due at 12:30 GMT as the marquee event of the day with most market participants expecting an additional 250B to 500B in funds for the PEPP. The lower bound case will likely disappoint traders in both FX and equities alike as asset markets are expecting aggressive measures from central banks to maintain liquidity and spur on demand.

There has been much hand ringing over the conflict between the German Constitutional court and the EU over the legality of the QE program, but EU has essentially batted away the ruling by stating that Germans have no authority over EU law and only the EU Court can determine the legality of any pan-European action. Therefore it’s unlikely that Ms. Legarde will be deferential in any way to the German position and will most likely opt for the 500B expansion which should pacify the credit and equity markets.

That EURUSD has been on a tear lately putting its best multi-day rally in years and if the ECB remains accommodative the currency should remain bid. As many analysts have pointed out in a post-COVID world all the normal economic variables are flipped around and a highly accommodative policy is actually viewed as positive for the currency because it provides support for a rebound in growth.

Away from ECB the calendar is quiet today and the key question is whether the markets will be able to extend the risk rally much further. The price action suggests that buying momentum may be exhausting itself after breaking key levels in S&P and Nasdaq yesterday so some correction may be due as the day proceeds and markets prepare themselves for NFP release tomorrow.

Boris Schlossberg
Managing Director

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