Quick Thoughts on ECB Press Conference

EUR has risen more significantly than other major currencies following the ECB press conference.

The market may have been looking for more cautious comments from Draghi emphasising the risks to growth in the region.

The statement did acknowledge a small downward revision to growth this next year and next, by 0.1ppt, and did say that:

“Uncertainties relating to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence recently.”

However, they maintained their view that: “The risks surrounding the euro area growth outlook can still be assessed as broadly balanced.”

In the press conference, Draghi emphasised that the underlying economy remains solid, that wages growth is rising and supporting consumption.  He noted that to date there had been no contagion from higher borrowing costs or softer growth in Italy to the rest of the Eurozone.

Initially, there was little change in Eurozone bond yields, but around an hour after the conference, 10yr German bund yields are up 2bp, and 10 year Treasury yields are down 3bp from session highs just ahead of the US CPI data.

The gains in the EUR may reflect some technical factors, it was holding firm ahead of the meeting, and the demand was there to push it up.  Emerging market assets have strengthened in the last day, the dollar more broadly weaker.  The EUR has broken its recent narrow range around 1.16, and now is moving up to its peaks since July in the mid-17s.

The weaker than expects US CPI further extended the recent fall in the USD and helped boost the EUR.

Positions

Short one unit of EUR/CAD at 1.5117; s/l 1.5223; t/p 1.4823  (Capital at Risk 0.72%)