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The ECB kept all policy measures unchanged at today's meeting, which was in line with our expectations. The ECB also maintained its forward guidance on policy rates as it still expects rates 'to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases'. Regarding the QE purchases the ECB also continued to have an easing bias as it communicated that it stands ready to increase QE in terms of size and/or duration.

However, Draghi had a hawkish tone during the Q&A session as he said the Governing Council discussed whether to remove the 'lower levels' from the forward guidance on policy rates. According to Draghi, the forward guidance in terms of lower policy rate levels was an expectation and the probability of this expectation materialising had gone down. Added to this, the ECB removed a sense of urgency in taking further actions as the introductory statement no longer included 'If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate.'

In our view, a next step from the ECB when moving in a less dovish monetary policy direction is to remove the 'lower levels' from the forward guidance. However, according to Draghi this is a very small step and in our view it also does not mean the ECB will hike policy rates in the near future. We expect the ECB to continue to communicate that policy rates will remain at present levels for an extended period of time, and well past the horizon of the QE purchases. Hence, it should not start to communicate that policy rates could be hiked before the QE purchases have stopped running.

The ECB revised its headline inflation forecast upward this and next year while it lifted its core inflation forecast for 2018 and 2019. In our view, the ECB was already very optimistic in its core inflation forecast before the upward revision to the March projection and we expect the ECB will have to lower its core inflation projection later in time, which could be followed by a return to a more dovish stance. Related to this, Draghi very clearly said the ECB's inflation forecasts are conditional on full implementation of the monetary policy measures.

Along these lines, Draghi repeated that underlying price pressure remains subdued and we stick to our view that the ECB will extend its QE purchases beyond December 2017. This should follow as we expect core inflation to stay below 1.0% during most of this year and as we expect that core inflation will have to exceed 1.0% for a number of months before the ECB will announce QE tapering.

On the very short-end German yield curve, Draghi said the ECB was monitoring distortions. According to Draghi the moves were mainly driven by 1) an increasing fraction not having access to the deposit facility, 2) 'safe haven' flows, and 3) to a lesser extent the QE purchases. It appeared that it was still early days for this analysis and that the ECB could come back to the issue at upcoming meetings. In our view, this communication is a usual first step when the ECB acknowledges an issue.

The market reacted by sending German government bond yields higher by around 5bp beyond the 10Y point. Against this, Schatz did not sell-off, probably reflecting Draghi's comment that the distortions to a lesser extent were due to the QE purchases. EUR/USD is trading slightly higher at 1.058 from 1.054 this morning.

Changes to the ECB's projections

The ECB lifted its headline inflation projection considerably in 2017 and slightly in 2018, but kept it unchanged in 2019. The higher 2017 forecast was due to energy and food price inflation

Focus overnight was all ECB. While the markets were preparing for the ECB to move in a more positive direction the sultan of sophistry, Mario Draghi, was at his best firing knuckleball during his prepared comments but finishing with a wicked curve ball. While interest rates remain on hold and the prepared statement was arguably dovish Draghi's press conference forward guidance suggested that a shift in policy was on the horizon which kicked the Euro bulls into overdrive as there will little ambiguity between political uncertainty and data strength during his presser.

Commodity prices continue to drop like a sack of potatoes with Oil leading the charge as bearish market forces, rather than anticompetitive price fixing politics are now in the driver's seat.

Euro

Given Draghi's hawkish tilt, markets ferociously bought EUR across with both EURUSD and EURJPY leading the charge. Expect the EUR crosses to remain buoyant. However, given high USD demand, which is projected to accelerate as we near next week's FOMC, he EURUSD gains will likely be capped during the FOMC buildup.

Amazing what a subtle shift in the ECB playbook can do for EUR sentiment leaving many wondering what ever happened to dovish Draghi.

Australian Dollar

Commodity prices have hit the skids as the China expansion motor is looking a bit lethargic these days.

While it's not just an oil storyline as both copper and iron ore are looking extremely vulnerable, but oil prices are indeed providing the grease for this slippery commodity slope.

EURAUD has been in demand, pressuring the Aussie, as the markets seize the current story line that the EUR will hold firm against everything but the dollar even more so versus commodity currencies which are struggling in the face plummeting oil prices.

All the while US yields look stationed to make higher highs which are blending into a toxic cocktail for the Australian Dollar

Japanese yen

Both EURJPY and USDJPY demand have weighed on Yen sentiment and while the critical 115 level has held, but now at close range, it's more about when rather then if, as we approach what is expected to be an attractive Non-Farm Payroll number

EM Asia

US yields have certainly kicked into high gear since stellar ADP print. With tonight's NFP supposed to come in well, the market will continue gearing up for the anticipated rate hike next week.None the less there appears to be little panic in EM Asia as the dealers are not chasing the USD move higher as they have been prone to in the past, but pockets of USD selling interest continues to emerge as the broader market is still uncertain about the pace of US tightening. The USD continues to lag US bond yields which may imply that after the FOMC is done the dollar may peak and reverse. However much of the speculation on APAC EM is the resumption of buoyant risk appetite and a continued improvements in the global growth story line, all of which is open to much debate.

EURUSD found some support today from 1.0524 level, which was quite aggressive bullish move, but for now still only with three waves, so as long that's the case we need to consider bearish prices. 1.0542 break would be strong confirmation for a decline beneath 1.0524 and then towards 1.0500.

EURUSD, 1H

USD/CHF - 1.0147

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 1.0143

Kijun-Sen level                    : 1.0143

Ichimoku cloud top                 : 1.0143

Ichimoku cloud bottom              : 1.0129

Original strategy :

Buy at 1.0080, Target: 1.0200, Stop: 1.0045

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0080, Target: 1.0200, Stop: 1.0045

Position : -

Target :  -

Stop : -

Although the greenback rebounded after finding support at 1.0123 yesterday, break of this week’s high at 1.0171 is needed to signal recent erratic rise from 0.9861 low has resumed and extend further gain to 1.0200-10 but near term overbought condition should limit upside to 1.0220-25 and price should falter below previous chart resistance at 1.0248. If said resistance at 1.0171 continues to hold, then further consolidation would take place and risk of another retreat to 1.0123 cannot be ruled out, however, reckon downside would be limited to 1.0100 and support at 1.0173 should hold, bring another rise later.

In view of this, would not chase this rise here and would be prudent to buy dollar on subsequent pullback as support at 1.0073 should limit downside. A drop below 1.0065 support would abort and signal top is formed instead, risk weakness to 1.0040-45 but reckon support at 1.0009 would remain intact. 

GBP/USD - 1.2152

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2165

Kijun-Sen level                    : 1.2165

Ichimoku cloud top              : 1.2209

Ichimoku cloud bottom        : 1.2176

Original strategy :

Sell at 1.2215, Target: 1.2115, Stop: 1.2250

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.2215, Target: 1.2115, Stop: 1.2250

Position : -

Target :  -

Stop : -

As cable has remained under pressure after recent selloff, adding credence to our bearish view that recent decline from 1.2706 is still in progress and may extend further weakness to 1.2110-15, then 1.2090, however, loss of near term downward momentum should prevent sharp fall below 1.2070-75 and price should stay above 1.2050, risk from there is seen for a rebound later.

In view of this, would not chase this fall here and would be prudent to sell cable on recovery as 1.2210-15 should limit upside. Above resistance at 1.2253 would defer and suggest a temporary low is possibly formed instead, risk a stronger rebound to 1.2275-80 but price should falter below resistance at 1.2301 and bring another selloff.

EUR/USD - 1.0582

Most recent candlesticks pattern   : N/A

Trend                      : Sideways

Tenkan-Sen level              : 1.0570

Kijun-Sen level                  : 1.0570

Ichimoku cloud top             : 1.0572

Ichimoku cloud bottom      : 1.0558

Original strategy  :

Buy at 1.0515, Target: 1.0625, Stop: 1.0485

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0560, Target: 1.0660, Stop: 1.0525

Position : -

Target :  -

Stop : -

As the single currency finally staged the anticipated rebound after finding support at 1.0525, suggesting the retreat from 1.0640 has ended at 1.0525 and consolidation with mild upside bias is seen for further gain towards said resistance, however, break there is needed to retain bullishness and signal another leg of the erratic rise from 1.0493 low is underway for retracement of early decline to 1.0660-65 (50% Fibonacci retracement of 1.0829-1.0493) and possibly towards resistance at 1.0680 but price should falter well below 1.0700-05 (61.8% Fibonacci retracement).

In view of this, we are looking to buy euro on dips as 1.0560 should limit downside and bring another rise later. Below said support at 1.0525 would abort and risk test of 1.0493-96 but only break there would shift risk back to the downside and signal recent decline from 1.0829 has resumed for further selloff to 1.0470 and then towards previous support at 1.0454.

USD/JPY - 114.85

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 114.68

Kijun-Sen level                  : 114.62

Ichimoku cloud top             : 114.14

Ichimoku cloud bottom      : 114.14

Original strategy  :

Buy at 114.20, Target: 115.20, Stop: 113.85

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 114.20, Target: 115.20, Stop: 113.85

Position :  -

Target :  -

Stop : -

Yesterday’s rally after finding renewed buying interest at 113.61 signals the rise from 111.69 is still in progress and may extend further gain to previous chart resistance at 114.96, however, break there is needed to signal early erratic rise from 111.59 low has resumed and extend gain towards another previous resistance at 115.38 but price should falter below previous resistance at 115.62, bring retreat later.

In view of this, we are looking to buy dollar on pullback as 114.15 (previous resistance now support) should limit downside and bring another rise later. Below 113.95 support would signal an intra-day top is formed instead, risk weakness towards said strong support at 113.56-61 which is likely to hold from here.

Reflation in the U.S. is being supported by a gradual firming in import prices. Import prices rose 0.2 percent in February, but unlike recent months, the gain was driven by nonfuel prices. Export prices were also up.

Reflation Help From Abroad

• For a second consecutive month, import prices rose a bit more than expected, while previous gains were revised upward. Import prices rose 0.2 percent in February, bringing the yearover- year rate to 4.6 percent—the strongest 12-month gain since 2012.
• Unlike the past two months, the gain was not driven by rising energy prices; petroleum prices slipped 0.7 percent.

Exporters Get Some Pricing Power

• Excluding fuel, import prices rose 0.3 percent on the back of higher prices for imported consumer goods (ex-autos) and nonfuel industrial supplies.
• Exporters gained some pricing power last month with total export prices up 0.3 percent. Excluding food and fuel, prices were up an even stronger 0.5 percent, led by gains in capital goods and industrial supplies.

USD/CAD has edged upwards in the Thursday session. In North American trade, the pair is trading at the 1.35 line. On the release front, Canadian NHPI remained unchanged at 0.1%, matching the forecast. In the US, unemployment claims climbed to 243 thousand, higher than the forecast of 239 thousand. On Friday, the spotlight is on employment data on both sides of the border. In the US, today's key event is unemployment claims, with the markets expecting the indicator to climb to 239 thousand. On Friday, employment numbers will again be in the spotlight. The US will release three key indicators – Nonfarm Payrolls, Average Hourly Earnings and the unemployment rate. Canada will publish Employment Change and the unemployment rate.

Canada's employment market has improved in recent months, buoyed by strong employment gains. The economy added 48.3 thousand jobs and 53.7 thousand jobs in December and January respectively. This surprised the markets, which had predicted declines for each reading. The unemployment rate has also improved, dropping to 6.8%. A strong US economy has been good news for Canada, which is heavily dependent on its southern neighbor. At the same time, speculation of an imminent rate hike by the Fed has boosted the US dollar, which has jumped 2.5% against the Canadian currency since the end of February. USD/CAD has pushed above the 1.35 line, as the pair has hit a high for 2017.

After raising rates in December, the Fed appears ready to make a March move. The odds of a March hike continue to climb, and are currently at 88% percent, according to the CME Group. Fed policymakers have been dropping hints of a March move, and a red-hot labor market and higher inflation levels present further arguments in favor higher rates. Earlier in the year, the Fed had said that it wanted to wait until it had a clearer idea of President Trump's economic policy before it tightened monetary policy. However, Trump has not backed up his promises to reform the tax code and increase fiscal spending with any details. Some Fed policymakers wanted to raise rates earlier this year, so Fed Chair Yellen is under pressure to make a move, and it appears virtually certain that the Fed will raise rates by a quarter-point on March 15.

Daily Pivots: (S1) 1.0524; (P) 1.0549 (R1) 1.0564; More.....

EUR/USD rebounds after initial dip today. But still it's bounded in range of 1.0493/1.0630. Hence, intraday bias remains neutral first. On the downside, below 1.0493 support will affirm the case that fall from 1.0828 is resuming the larger down trend. In that case, intraday bias will be back to the downside for resting 1.0339 low. On the upside, firm break of 1.0630 resistance will argue that pull back from 1.0828 is completed. Also, rise from 1.0339 could possibly be resuming. In that case, intraday bias will be turned back to the upside for 1.0828 resistance and above.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.