US equities extended the bull run overnight as the S&P 500 rose to another record close of 1890.9, up 5.38 pts or 0.29%. The Dow also rose 40.39 pts, or 0.24% to close at 16573, just below record close of 16576.66. Treasury yields also surged with 10 year yield up 0.044 to 2.803 while 30 year yield rose 0.045 to 3.649. The Dollar Index, on the other hand, continued to hover in tight range above 80, around 55 days EMA, without any progress. Yen's recovery was rather brief and dipped to new low against dollar as overwhelmed by surging yield and risk appetite. european majors are staying in tight range against the greenback, so was the Canadian dollar. The Australia dollar dipped mildly after mixed data but quickly recovered back into prior range.
The ECB rate decisions and press conference is the main focus today. The inflation reading of 0.5% yoy in March was below expectation and well below the central bank's 2% target. But ECB is still expected to keeps its hand on rates and will keep the refinancing rates unchanged at 0.25%. Recently, ECB officials had sung a chorus to talk down the euro to help lift inflation but some economists are skeptical on the effect of such verbal intervention. While the officials have repeated said the ECB is technically ready for additional unconventional measures like negative rates or even QE, they also emphasized there is no risk for deflation in the eurozone.
Technically, the euro looks soft, except versus yen, ahead of the ECB meeting. The EUR/USD's rally attempt from 1.3704 was weak and we might see another dip back to this level before it bottoms. The EUR/GBP recovered mildly in the early part of the week but is heading south again today. With 0.8321 minor resistance intact, EUR/GBP would head lower to 0.82 handle and below. The EUR/CAD should have at least topped in near term at 1.5585 and the correction from there is still in progress. Outlook in The EUR/AUD also stays bearish with 1.5086 minor resistance intact for another low below 1.4778.
The latest report from the IMF indicates that global FX reserve increased +US$235.1B to 11673.7B in 4Q13. The increase mainly came from China as the PBOC absorbed the country's trade surplus and the rise in capital inflow. Note also that the share of the euro in global FX reserve has risen for a third consecutive quarter, signaling market confidence of the euro has improved. The USD's share continued to decline as a result of the Fed's quantitative easing measures over the past years. More in USD's Share in Global FX Reserve Declined Further.
On the data front, Australia retail sales rose less than expected by 0.2% mom in February. Trade surplus narrowed to AUD 1.2b in February but was above expectation of AUD 0.82b. Other than ECB rate decision, services data will also be a main focus today. eurozone will release PMI services final while UK will release services PMI. US will also release ISM non-manufacturing.