ECB hints at more QE, euro drops against dollar

Friday, January 22, 2016

The ECB signalled toward more QE as President Mario Draghi set the stage for more stimulus, citing China’s economic slowdown and persistent market volatility throughout the second half of 2015 as factors threatening the eurozone’s recovery. Once again Mr Draghi reinforced his commitment to do whatever it takes to support the region, stating that there was no limit on how far the central bank was willing to go, stating they would review their current stimulus programme at the next ECB meeting in March. The euro traded sharply lower against the dollar on the news, spiking towards 1.0780 from 1.0920 before rebounding back towards 1.0900 as investors were left somewhat confused as to whether the comments were a firm indication of increasing support or whether they were just a hint. As always, policymakers at the ECB and indeed at major central banks around the world are keeping a close eye on inflation or the lack of inflation as is the case in many developed economies.

Front month WTI futures ended firmly higher yesterday, posting strong gains and ending the session over 11% higher compared to Wednesday’s close. The US benchmark briefly rallied above $30/bbl before ending the session around $29.50/bbl as a stronger appetite for risk assets buoyed the crude futures market. WTI futures along with front month Brent futures have extended the rally early on this morning with the former building firmly around support towards $30/bbl and trading as high as $31/bbl early on with similar moves in Brent. Risk appetite seems to be improving steadily but we are still cautious as the underlying fundamentals are still very bearish and will likely persist in this fashion at least throughout the first half of the year.

A busy day for economic activity today as investors after assessing eurozone PMI data will have UK retail sales and UK public finances data to pore through. Then later on in the afternoon the release of the Chicago Fed national activity index and manufacturing PMI will keep market participants engaged throughout the day. Positive sentiment on Wall Street managed to spill over into the Asian session and with an upbeat start to European trading today it looks as if the recent market volatility may be starting to dissipate, however, investors would be wise to exercise caution at a time when risk assets have whipsawed frequently over the past few weeks.  

EUR drops sharply as Draghi's hints towards more QE

EUR Curncy Euro Spot 5 Days 15 2016 01 22 08 06 53

Front month WTI futures extend gains early on 

CO1 Comdty Generic 1St CO Fut 2016 01 22 08 27 43

Events for today

0855

DE

Jan

Markit Manufacturing PMI

0855

DE

Jan

Markit Services PMI

0900

EZ

Jan

Markit Manufacturing PMI

0930

UK

Dec

Retail Sales

0930

UK

Dec

Public Finances (PSNCR)

1330

US

Dec

Chicago Fed Nat Activity Index

1445

US

Jan

Markit Manufacturing PMI

1500

US

Dec

Leading index

FN: 

Feb Crude WTI (NYMEX) 

Topics: Crude oil, ECB, PMI, WTI, EUR
More from: Kash Kamal