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Euro Struggles to Gain as ECB Draghi Talks Down Even Tiny Step of Exit

Euro is initially short up as ECB turned a bit less dovish in the statement after keeping monetary policy unchanged. However, the common currency cannot extend gains as there is no follow through buying. More importantly, ECB President Mario Draghi tries to tone down the significance of the change in the post meeting pressing conference. For now, EUR/USD is still trading below 1.2443 minor resistance, EUR/GBP below 0.8967, EUR/JPY below 132.01. The only exception is EUR/CHF, which is marching on 1.17 today and is on course for 1.1821 key resistance.

Elsewhere, Canadian Dollar is trading as the strongest major currency today on relief that Canada will be exempted from US President Donald Trump’s steel and aluminum tariff. Dollar trading seems to be relieved too as the greenback is following the Loonie as the second strongest for today. DOW opens the day higher and is up around 100 pts at the time of writing. It could be having a taken of the difficult 25000 handle again.

ECB takes tiny step in exit, but Draghi still talks it down

ECB left the main refinancing rate unchanged at 0.00% today as widely expected. The marginal lending facility rate and deposit facility rate are held at 0.25% and -0.40% respectively. The program to buy EUR 30b assets per month till September is also held unchanged. The most important part of the policy statement is that the option to “expand” the asset program is taken out. That is, the following texts are omitted from today’s statement:

“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the asset purchase programme (APP) in terms of size and/or duration.”

But later in the post meeting press conference, Draghi tried to tone down the change. . While the decision was unanimous, Draghi emphasized that it’s just removing “explicit reference” to the chance of increasing the size of the APP again. However, firstly, ECB will keep interest rate at the current level for an extended period after the APP ends. And secondly ECB is still keeping the option to “extend” the APP beyond September.

ECB also released updated economic projections. There are little changes except that growth in 2018 is expected to be slightly faster at 2.4%. 2019 inflation projection is lowered by 0.1% to 1.4%.


  • 2018 at 2.4% vs 2.3% prior
  • 2019 at 1.9% vs 1.9% prior
  • 2020 at 1.7% vs 1.7% prior


  • 2018 at 1.4% vs 1.4%
  • 2019 at 1.4% vs 1.5%
  • 2020 at 1.7% vs 1.7%

Released earlier in European session, German factory orders dropped -3.8% mom in January. Swiss unemployment rate was unchanged at 2.9% in February.

Trump’s tweet in-line with expectation of exemptions of Canada and Mexico in tariff

Trump will be formally signing the order on 25% steel and 10% aluminum tariff today. Trump tweeted this morning that “looking forward to 3:30 P.M. meeting today at the White House. We have to protect & build our Steel and Aluminum Industries while at the same time showing great flexibility and cooperation toward those that are real friends and treat us fairly on both trade and the military.”

The message is so far in line with market expectations that Canada and Mexico will be given temporary exemption on the tariffs while NAFTA negotiation is carrying on.

Released from US, initial jobless claims rose 21k to 231k in the weekended Mar 3. Prior week’s 210k was the lowest since 1969. Four week moving average rose 2k to 222.5k. Continuing claims dropped 65k to 1.87m in the week ended February 24.

From Canada, housing starts rose to 229.7k in February, above expectation of 220k. New Housing price index rose 0.0% mom in January versus expectation of 0.1% mom. Building permits rose 5.6% mom in January versus expectation of 1.3% mom.

Australia recorded massive AUD 1.06b trade surplus in January

Australia recorded massive trade surplus of AUD 1.06b in January, a turnaround from December’s AUD -1.15b trade deficit. Exports jumped 4% mom to AUD 33.9b, with 4% rise in non-rural goods, 54% rise in non-monetary gold. Much more than offsetting -8% fall in rural goods. Imports, on the other hand, dropped -2% to AUD 32.9b. Consumption goods dropped -7%, non-monetary gold dropped -19%, capital goods dropped 1%.

China pledges “justified and necessary response” to trade wars”

China Foreign Minister Wang Yi pledged to have “justified and necessary response” to trade wars. He said that “A trade war has never been the right way to solve the problem, especially under globalization.” And, these conflicts “will only harm everyone and China will surely make a justified and necessary response.”

At the same time China’s trade surplus widened to USD 33.7b in January, or CNY 225b. Both were way better than expectation of USD -8.5b or CNY -71b deficit. Exports rose 44.5% yoy. Imports rose 6.3% yoy.

From Japan, Q4 GDP was finalized at 0.4% qoq, revised up from 0.1% qoq. GDP deflator was revised up to 0.1% yoy.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2381; (P) 1.2413 (R1) 1.2441; More….

EUR/USD edges higher to 1.2445 but fails to sustain gain above 1.2443 temporary top. Intraday bias remains neutral first and some more consolidative could be seen. For now, further rise will remain mildly in favor as long as 1.2268 minor support holds. Firm break of of 1.2555 and 1.2516 long term fibonacci level will carry larger bullish implications. On the downside, below 1.2268 minor support will turn bias back to the downside for 1.2154 instead.

In the bigger picture, key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 remains intact despite attempts to break. Hence, rise from 1.0339 medium term bottom is still seen as a corrective move for the moment. Rejection from 1.2516 will maintain long term bearish outlook and keep the case for retesting 1.0039 alive. Firm break of 1.1553 support will add more medium term bearishness. However, sustained break of 1.2516 will carry larger bullish implication and target 61.8% retracement of 1.6039 to 1.0339 at 1.3862.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:45 NZD Manufacturing Activity Q4 2.80% 0.50%
23:50 JPY Current Account (JPY) Jan 2.02T 1.76T 1.48T 1.68T
23:50 JPY GDP Q/Q Q4 F 0.40% 0.20% 0.10%
23:50 JPY GDP Deflator Y/Y Q4 F 0.10% 0.00% 0.00%
00:01 GBP RICS House Price Balance Feb 0% 7% 8%
00:30 AUD Trade Balance Jan 1.06B 0.22B -1.36B -1.15B
02:00 CNY Trade Balance (USD) Feb 33.7B -8.5B 20.3B
02:00 CNY Trade Balance (CNY) Feb 225B -71B 136B
06:45 CHF Unemployment Rate Feb 2.90% 2.90% 3.00%
07:00 EUR German Factory Orders M/M Jan -3.90% -1.60% 3.80% 3.00%
12:30 USD Challenger Job Cuts Y/Y Feb -4.30% -2.80%
12:45 EUR ECB Rate Decision 0.00% 0.00% 0.00%
13:15 CAD Housing Starts Feb 229.7K 220K 216K 215.3K
13:30 CAD New Housing Price Index M/M Jan 0.00% 0.10% 0.00%
13:30 CAD Building Permits M/M Jan 5.60% 1.30% 4.80% 2.50%
13:30 USD Initial Jobless Claims (MAR 3) 231K 216K 210K
15:30 USD Natural Gas Storage -58B -78B

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