ECB meeting offers nothing which leads to heavy falls across European stock markets

by Kymberly Martin

NZD

The NZD/USD was whipped around by the ECB announcement overnight, but has returned to trade at the familiar 0.8090 level.

The NZD/USD briefly spiked to above 0.8160 in erratic trading following the ECB announcement that disappointed market expectations.

It soon returned to trade at the 0.8090 level. However, the NZD made solid gains relative to the beleaguered EUR.

The NZD/EUR was propelled to new all-time highs above 0.6660 before returning to trade just above 0.6640.

We see the cross as getting close to its peak, that we see could be as high as 0.6800-0.6900. Still, after last night’s disappointment it is difficult to see any near-term catalyst to reverse negative sentiment toward the EUR.

The Bank of England provided little to surprise overnight, but general negative European sentiment weighed on the GBP also. The NZD/GBP rose in choppy trading to just below 0.5220 currently.

This is the highest level this cross has traded since mid-March. Today, the NZD/USD will likely be contained within its familiar 0.8070 to 0.8140 range, ahead of the closely watched US payrolls data released tonight.

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Majors

It was a night of violent moves in currency markets. As the ECB disappointed market expectations the USD was the ultimate winner. A heavy toll was taken on the EUR.

The stakes were high, and the ECB was unable to deliver. At its meeting overnight it offered future sovereign bond purchases, but no immediate concrete measures.

This was much less than the market had hoped for. Market sentiment soured rapidly. The Euro Stoxx 50 closed down 3.0% with the Spanish IBEX down 5.2%. Non-core European bond yields soared.

As the market responded to President Draghi’s comments, following the ECB decision to leave interest rates at 0.75%, currencies shifted violently. Ultimately the USD won the day, snapping back from below 82.40 to trade around 83.40 currently.

The EUR/USD that briefly spiked to 1.2400 soon plummeted to below 1.2150. Subsequently it has limped back to trade around 1.2170 at present. The EUR is still above its lows of early last week, but support for the currency from ECB policy now looks rather distant.

The GBP/USD was also thrashed around overnight. The Bank of England left rates unchanged and did not announce any further asset purchases, as expected. However, the currency followed the EUR’s pattern, briefly spiking higher on the ECB announcement before plunging back to trade at 1.5500 currently.

The AUD along with the NZD showed erratic trading around the ECB announcement, before returning to similar levels to yesterday morning. The AUD/USD currently sits just below 1.0460.

There are a handful of PMI Services releases from AU, China and Europe in the day ahead. But the major focus will be the US payroll report tonight.

The risk of harsh disappointment is lessened by a solid US ADP employment report earlier in the week. However, it would take a large positive surprise (100k expected), to cheer markets still licking their wounds after last night’s disappointments.

Event Calendar:  3 August: CH non-manufacturing PMI; EU retail sales; EU & UK PMI services; US non-farm payrolls.

All its research is available here.