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Forex Analysis

03/05/2015 08:45:42

ECB to provide further clarity on QE program but focus is on US jobs report

By Craig Erlam, analyst at Oanda

Craig Erlam, analyst at Oanda, noted that as far as the ECB is concerned, people don’t really know what to expect from today and that may be feeding into that cautious tone in the markets right now. On the one hand, the QE program has been announced and therefore it’s extremely unlikely that any additional monetary stimulus will be announced.

On the other hand, this is Mario Draghi we’re talking about. Never underestimate his ability to create some pandemonium in the markets even when he’s not really said anything of substance. We are due to get details of the QE program today, but I’m not entirely sure how that can impact equity of fx markets, I’d say today is much more of a bond markets story.

That said, Erlam also noted that with national central banks sharing the risk of these purchases, I do wonder if there’ll be a great desire from some to take on much risk. Yields on Eurozone debt are already very low, many shorter term bonds are trading with negative yields, I’m really not sure what the ECB expects to achieve with this QE program. If some national central banks don’t wish to take on such risk for such minor benefits, I question whether the ECB will achieve its goal of growing its balance sheet by €1 trillion.

Any hint at this from Draghi could seriously shake things up in the markets and therefore I see far more upside risk for the euro heading into the meeting than downside. Especially when you consider a lot of the data that has pointed to improvements in the region and the latest inflation reading which despite being in negative territory, improved on last month. It’s going to be a challenge for Draghi to not talk up the euro today.

Central banks aside, tha analyst with Oanda also noted that there are a few data releases from the US today including jobless claims, factory orders and productivity reports. With the jobs report to come tomorrow, these may not grab too much attention but I certainly think they’re worth paying attention to.


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