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  • Forex today was once again changing hands in a risk-off environment.  
  • The ECB was the central focus, extending their forward guidance on keeping interest rates steady from “at least” through the end of summer 2019, to “at least” end 2019.
  • The euro and most of the G10’s were on the back foot on Thursday as the dollar steamrolled ahead, making fresh highs in its daily advance towards the 98 handle in the DXY.  

The ECB joined the chorus of dovish talk from Central Banks of late and outlined renewed liquidity provisions earlier than anticipated.

“The ECB took out its limited monetary bazooka (to bolster growth in the euro area) by easing forward guidance and announcing a new TLTRO III program. The move was in response to weak growth and falling inflation pressures. The balance of economic risks, the ECB says, lies to the downside; and the ECB is prepared to adjust all available instruments if needed. Equities did not benefit. European stocks were dragged lower by the implications of extended negative interest rates on bank profitability,” analysts at ANZ explained.  

However, the key to the downside in the euro and risk came on the back of sharpness of the downward revisions to staff forecasts which lowered Eurozone growth (to 1.1% in 2019) and inflation (both core and headline 1.2% in 2019) through their forecast period. The single currency dropped from  1.1310 to 1.1275 on the policy changes and kept bleeding when Draghi took the spotlight during his press conference. EUR/USD dropped to as low as 1.1177, the lowest level since June 2017.  

Currency action

Analysts at Westpac noted the other key price action in the G10 space as follows:  

“GBP/USD was dragged lower, -0.7% on the day to 1.3075. The Swiss franc and Scandi currencies also fell sharply.

The defensive yen outperformed: USD/JPY fell from 111.80 to111.50/60 as equities fell. AUD/USD was more resilient than the European currencies, but in late NY trade extended its decline under 0.7010, printing fresh lows since the early Jan “flash crash”. NZD/USD similarly slipped from 0.6790 to 0.6750. AUD/NZD ranged between 1.0370 and 1.0400. CAD also kept falling.”

Key notes from the US session:

  • DJIA ends in triple digit losses and 38.2% Fibo at 24500 is on the horizon

  • ECB: First deposit rate hike now seen March 2020 – Wells Fargo

  • ECB: The message was more dovish than expected – BBVA

Key events in Asia:  

The focuses will be on China Feb trade.  

“Jan trade data surprised on the firm side but great caution is always needed around lunar new year holidays. The monthly changes are very hard to forecast but for what it’s worth, the median forecast is -5%yr on exports, -0.6%yr on imports, for a smaller trade surplus of $26bn,” analysts at Westpac explained.