Update: Draghi is not pulling this back from the edge as is typically the case during his presser.
Instead of offering a more bullish ‘flip-side’ perspective – as is usually his manner in the presser – Draghi is piling on, confirming investors’ concerns and the market’s dovish interpretation.
*DRAGHI: DON’T WANT TO UNDERPLAY EXISTING RISKS TO OUTLOOK
*DRAGHI: UNDERLYING STRENGTH OF ECONOMY NOT CHANGED
*DRAGHI: SOFT PATCH MAY LAST LONGER THAN IMPLIED IN FORECASTS
*DRAGHI: SOFT PATCH CAN EXTEND INTO 2Q IN SOME COUNTRIES
All of which fits with this ugliness!
Danske Bank’s Piet Christensen sums it up:
Overall, Draghi has been very dovish so far despite ending QE. No rate hike is imminent at all.
— Piet P.H. Christiansen (@pietphc) June 14, 2018
EURUSD just plunged to a 1.16 handle…
And 10Y Bund yields are down 8bps from the intraday highs
Is Draghi’s sudden change of heart and style a shift to jawboning down the Euro? Certainly seems that way.
And while specs have lightened up on their record long EUR positioning, they are still extremely long…
* * *
Well, that wasn’t supposed to happen…
Following the ECB’s statement confirming further tapering of its QE program and and end to net buying by December, Bund yields and the Euro briefly spiked higher… however, just as we noted in the preview ” That said, when everyone is confident that one thing will happen, don’t be surprised to see the EUR tumble…” it appears the positioning is backfiring and investors are selling the news in Euro…
and buying it in Bunds…
Commerzbank strategist Thu Lan Nguyen warns the ECB decision “means there is little appreciation potential for the euro over the short to medium term,” and expected EURUSD to drop to 1.16 in the next couple of months “as the dollar remains underpinned by a stronger rate outlook.”
The ECB strengthening its forward guidance on interest rates “should contain any significant euro strength” going forward:
“What matters for the currency is when rates will rise in the euro zone, and the ECB has now made clear that there will be no step until at least autumn next year.”
Citi agrees with Commerz, noting that what is dovish is how the ECB has pushed back the timing of the first hike to “at least through the summer of 2019”. Given that the changes to forward guidance and tapering were already expected by the market, there is little here for the hawks. Price action is playing out that disappointment. Given the levels EURUSD was trading prior to the decision (around 1.1825), this correction likely has legs. EURUSD is now approaching support at 1.1725, and then the June 1 low is in sight at 1.1617.
Of course, the machines in ‘Murica could not resist using this ‘event’ as an excuse to ignite some momo…