Intraday Market Thoughts

Draghi Finds the Guidance Light

by Adam Button
Jul 4, 2013 23:47

Forward guidance is the latest weapon for European policymakers as Carney and Draghi both introduced measures Thursday. The Australian dollar was the top performer while GBP lagged. The Asia-Pacific calendar is light ahead of Friday's non-farm payrolls report. We added 1 new USDCHF long today after yesterday's modified long remained unfilled by 5 pips. Today's EURUSD short hit all targets, while yesterday's 2 shorts await fill ahead of tomorrow's NFP. USDCHF, USDJPY, AUDUSD USDCAD and EURGBP trades are in progress. All these trades and their charts are found in the Latest Premium Insights

For years, ECB leaders exclaimed that they never pre-commit on rates but that all changed Thursday as Draghi said the governing council expects the key ECB interest rates to remain at present or lower levels for an extended period of time. He emphasized that it injected a downward bias on interest rates. He struck a further dovish tone noting there was an extensive discussion on potential rate cuts.

The euro immediately fell a full cent and broke below 1.2900. Ashraf has advocated for euro shorts and Draghi added additional reasons to bet against the common currency.

Commodity currencies stand to benefit from a more dovish BOE and ECB and that was the case on Thursday as all three rallied. The new stances should encourage global growth, boost commodity prices and improve the carry advantage.

Carney also surprised markets Thursday by initiating a statement following the BOE decision. The statement warned about negative effects from the post-FOMC rises in market interest rates. The MPC said any rises that imply future rises in the bank rate are 'not warranted'.

Act Exp Prev GMT
Interest Rate Decision
0.50% 0.50% 0.50% Jul 04 11:45

Latest IMTs