After a quiet start to the week, market-moving data has finally picked up, with traders keying in on three major events:
1) The ECB meeting initially struck traders as dovish, with ECB President Mario Draghi highlighting the potential for inflation to decline in the near term and emphasizing the ongoing need for stimulus. Crucially, Draghi stated that the central bank was “ready to use all instruments… ALL instruments,” prompting some traders to price in an imminent resumption of TLTROs to ease financial conditions.
Despite the initial drop, EUR/USD reversed back higher through yesterday’s US session and is once again trading marginally higher on the day near 1.1270:
2) The minutes from the March FOMC meeting generally underscored Governor Powell’s dovish press conference, though “several officials noted rate views could shift either way.” Ultimately, a majority of policymakers see rates on hold through 2019 amidst uncertainty over trade and Brexit. It’s worth noting that the Fed is still open to the idea of a potential rate hike toward the end of the year if economic data improves, a prospect the market has almost completely priced out. The greenback ticked marginally higher as the market-implied odds of a rate cut later this year dipped slightly.
3) As of writing, the EU is still deliberating over whether to extend the UK’s Brexit date, though most analysts believe it’s a question of how long the extension will be, not whether there will be one. PM May would prefer a short extension, though some EU members would rather see a longer delay; the natural compromise may be a “flextension,” wherein the UK can opt to leave earlier once a deal is agreed upon. Expect some volatility in the pound this evening, though if the offer comes out as most traders expect (a 6-12 month extension, with the UK given the option to terminate earlier), market movements may be limited.