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Euro and yields soar whilst stocks slump on Draghi

Summary:

  • Draghi fails to talk down the Euro
  • EURUSD breaches 1.25 to post new 3-year high
  • Bund yields hit highest level since 2015; DE30 threatening to fall lower

The earlier decision by the ECB to stand pat and keep rates unchanged was almost unanimously expected, with the press conference with President Draghi seen as more likely to drive the markets - and he didn’t disappoint. There were strong moves higher seen in both the Euro and bond yields as the Italian failed to make any serious attempt to talk down the recent rise in the single currency and the impact can also be seen in the stock market with the DE30 falling back from its highest levels of the day to make a break lower. 

Selected comments from the press conference are shown below:

  •  Inflation to rise gradually over medium term 
  • ECB does not target exchange rates
  • Economy has accelerated more than expected
  • Momentum could lead to positive growth surprises
  • More confident that inflation will head towards 2% target

Overall the comments were fairly upbeat with positive remarks made on both inflation and the economy. The biggest soundbite is potentially that the bank doesn’t target the exchange rate and therefore anyone hoping that Draghi would attempt to talk-down the Euro after the recent rise were left disappointed. 

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The headline grabbing moves came in the EURUSD with the world’s favourite FX pair breaking above the 1.25 handle and making another 3-year high. Source: xStation

The moves have been seen across many asset classes with the German ten year bond falling sharply - suggesting that the event was hawkish. The yield on the 10-year bund (which moves inversely to price) has hit its highest level since 2015 in the past hour. 

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 The Bund yield rose to its highest level in more than 2 years during the press conference. Source: forexlive

The DE30 has made a sharp drop during the event with the market showing an increasing inverse sensitivity to the EURUSD in the past 24 hours. The German index made a strong break higher at the start of the week, taking out its previous highs only to reverse strong during Wednesday’s trade. The false breakout saw an evening star (of sorts) printed on D1 and with today’s slump price is now almost 300 ticks above its recent peak.  

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 The DE30 has had a nasty reversal in the past 24 hours and could now be set for further declines. Source: xStation

 

 

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