Yesterday’s Trading:
The euro/dollar rose by 450 points on the American session to 1.0980. The active closure of short positions on the euro was sparked by the ECB decision and what Draghi had to say. Market participants expected more aggressive measures to be taken with regards to relaxing monetary policy.
Volatility on the market rose 9 minutes before the official ECB release. Before the results of the ECB meeting were out, the Financial Times wrote on twitter that the ECB would not change its monetary policy. Due to this misinformation, the market whipped up a storm. The euro/dollar jumped 120 points to 1.0657. Then it became clear (at 14:45 EET) that the ECB would drop its deposit rate and leave its base rate unchanged. The euro fell by 157 points to 1.0518.
The ECB dropped its deposit rate from -0.2% to -0.3%. The base rate stayed at 0.05%. Mario Draghi announced at the press conference that the ECB would keep their asset purchasing program at 60 billion euros per month and extend the program by 6 months to March 2017.
Since market participants were expecting the ECB to extend QE and this was already accounted for in the price, everyone was in a rush to close their short positions. Even Janet Yellen couldn’t muscle any limelight off the Europeans with her speech.
Eurozone GDP forecasts: for 2015 it was upped from 1.4% to 1.5%; for 2016 it was left unchanged at 1.7%; and the forecast was increased for 2017 from 1.8% to 1.9%. Inflation expectations were down: 2016 – from 1.1% to 1.0%; 2017 – from 1.7% to 1.6%.
The pound/dollar was up 200 points by the end of the day and stood at 1.5135. The dollar/frank was down 300 points to 0.9930. The Aussie/Yankee dollar pair was practically unchanged but the Aussie was feeling under pressure in its crosses (GBP/AUD, AUD/CHF, EUR/AUD).
Main news of the day (EET):
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