Refocusing on Fundamentals, Japanese CPI Upcoming

Confident words from Draghi turned the tide in markets, leading to large rallies in the euro, pound and commodity currencies. GBP was the best performer while the yen lagged. Japanese CPI deepened into the negative. and retail sales close out the Asia-Pacific trading week. Thursdays Premium Insights include EURUSD, GBPUSD, GBPJPY, EURJPY, AUDUD, USDCAD, silver and US Crude.

Draghi said the ECB will do whatever is necessary to preserve the euro. And believe me, it will be enough.

That statement continued to reverberate through US trading and into Asia. As Ashraf mentioned, the comments from Nowotny and expectations for a dovish Fed next week also fed into the move.

Looking at fundamentals, the US continues to weaken. Headline durable goods orders were strong but it was entirely due to volatile aircraft orders. Excluding aircraft and defense, capital goods orders fell 1.4% in June, worse than the 0.1 rise expected, even factoring an upward revision to the May data.

Jobless claims were better than expected but seasonal distortions are at work. Pending home sales were weak after yesterdays soft reading on new home sales.

The bond market continues to signal deflation and a potential recession. The Treasury sold 7-year notes at a record low yield, below 1%. Even with the positive news, 10-year yields still posted the fourth lowest close ever.

Periphery bond markets surged on speculation about ECB buying or some other program to bring down borrowing costs, not on economic improvement.

The ECB and the Fed have now boxed themselves into a corner by promising to do more.

Japan CPI fell to -0.8% vs -0.6%.

Another report to watch comes at 0130 GMT when China releases industrial profits for June. A strong reading may help to calm fears about manipulated GDP data, while a soft number would further fuel them.

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-AB