Forex: Euro at Risk if ECB Hints at Expanded Stimulus in the Works

DailyFX

Talking Points:

  • Euro at Risk if ECB’s Draghi Hints Stimulus Expansion Plans in the Works
  • US Dollar May Rise on Upbeat ISM Data But Follow-Through to be Limited
  • Aussie and NZ Dollars Declined in Asia, Soft Chinese Data a Likely Catalyst

The monetary policy announcement from the European Central Bank headlines the economic calendar in the hour ahead. Economists’ consensus forecasts point to no changes this time around and the traders are pricing in a meager 3.8 percent probability of an interest rate cut. For our part, we continue to think the ECB is waiting for its Asset Quality Review (AQR) to reveal the gap in policy transmission that prevents ultra-low borrowing costs in the interbank market from being passed through into the broader economy. Deepening disinflation may prompt a rhetorical effort however, with the Euro vulnerable if ECB President Mario Draghi overtly suggests that policymakers are drawing up plans for stimulus expansion at the press conference following the announcement.

Later in the day, the spotlight turns to the ISM Non-Manufacturing Composite gauge. Expectations point to a rebound in March after the index hit four-year low in the prior month. An upbeat outcome may fuel hopes for a reacceleration of the US recovery after the allegedly weather-induced soft patch witnessed in the first quarter of 2014. This would likely erode doubts about the continuity of the Fed’s efforts to “taper” QE asset purchases and may boost the US Dollar. Follow-through may be limited however as traders await Friday’s much-anticipated Employment report.

The Australian and New Zealand Dollars underperformed in overnight trade, with the selloff seemingly linked to disappointing economic data from China. Official Non-Manufacturing PMI data pointed to a slowdown in activity growth while a Composite PMI reading from HSBC that combines factory- and service-sector performance pointed to the steepest pace of contraction since November 2011. The East Asian giant is Australia and New Zealand’s top export market and a slowdown there carries significant spillover risk, which traders may have interpreted as limiting future RBA and RBNZ policy tightening prospects.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

22:30

AUD

AiG Performance of Service Index (MAR)

48.9

-

55.2

23:15

JPY

Markit/JMMA Composite PMI (MAR)

52.8

-

52.0

23:15

JPY

Markit Services PMI (MAR)

52.2

-

49.3

0:30

AUD

Retail Sales s.a. (MoM) (FEB)

0.2%

0.3%

1.20%

0:30

AUD

Trade Balance (A$) (FEB)

1200M

800M

1392M

1:00

CNY

Non-manufacturing PMI (MAR)

54.5

-

55.0

1:45

CNY

HSBC China Composite PMI (MAR)

49.3

-

49.8

1:45

CNY

HSBC/Markit Services PMI (MAR)

51.9

-

51.0

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:45

EUR

Italian Markit/ADACI Composite PMI (MAR)

53.4

53.4

Low

7:45

EUR

Italian Markit/ADACI Services PMI (MAR)

51.9

52.9

Low

7:50

EUR

French Markit Composite PMI (MAR F)

51.4

51.6

Low

7:50

EUR

French Markit Services PMI (MAR F)

51.4

Low

7:55

EUR

German Markit/BME Composite PMI (MAR F)

55.0

55.0

Medium

7:55

EUR

German Markit Services PMI (MAR F)

54.0

54.0

Medium

8:00

EUR

Markit Eurozone Services PMI (MAR F)

52.4

52.4

Medium

8:00

EUR

Markit Eurozone Composite PMI (MAR F)

53.2

53.2

Medium

8:30

GBP

Official Reserves (Changes)

-

$1096M

Low

8:30

EUR

Markit EU Composite PMI (MAR)

-

54.5

Medium

8:30

GBP

Markit/CIPS UK Services PMI (MAR)

58.1

58.2

Medium

8:30

EUR

Markit EU Services PMI (MAR)

-

53.9

Medium

8:30

GBP

Markit/CIPS UK Composite PMI (MAR)

58.1

58.2

Medium

9:00

EUR

Euro-Zone Retail Sales (MoM) (FEB)

-0.6%

1.6%

Medium

9:00

EUR

Euro-Zone Retail Sales (YoY) (FEB)

0.8%

1.3%

Medium

11:45

EUR

European Central Bank Rate Decision

0.25%

0.25%

High

11:45

EUR

ECB Marginal Lending Facility

0.75%

0.75%

High

11:45

EUR

ECB Deposit Facility Rate

0.00%

0.00%

High

12:30

EUR

ECB’s Draghi Holds Press Conference

-

-

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.3646

1.3713

1.3740

1.3780

1.3807

1.3847

1.3914

GBP/USD

1.6551

1.6594

1.6610

1.6637

1.6653

1.6680

1.6723

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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