Intraday Market Thoughts

Draghi's Comes up Short on Action & on Euro

by Adam Button
Aug 2, 2012 22:53

Trusting Draghi was the wrong trade it wasnt enough. The euro fell hard after the ECB left rates unchanged and unveiled no new programs. Asian trading will be quiet as the market begins to settle down ahead of non-farm payrolls. Ashraf is working on new Premium Insights due out later tonight strategizing for Fridays US jobs report.

The ECB was expected to unveil some set of decisive crisis measures including some combination of negative deposit rates, bond buys, LTROs or other creative programs. In the end, there were only words and hints that more is to come.

Minutes before Draghis press conference, the euro surged more than a cent to 1.2405. Last Friday when the ECB President said the ECB had the power to preserve the euro --trust me, it will be enough -- he put his personal credibility on the line.

When Draghi failed to deliver, the euro tumbled two cents to 1.2200. Draghi hinted the bond buys will come but peppered it in with wisdom like saying it was pointless to short the euro.

Draghis strongest statements urged Spain and Italy to call for help from the EFSF. Such a call requires automatic budget supervision but when Rajoy and Monti dismissed those calls later in the day, the euro fell further, as low as 1.2128.

Periphery borrowing costs shot higher. Italian 10-year yields hit 6.33% after falling as low as 5.75%.

US economic data was soft. June factory orders fell 0.5% when they were expected to rise 0.5%. Durable goods orders were also revised lower. Initial jobless claims were 5K better than expected at 365K.

The Asia-Pacific week winds down with a look at the Chinese service sector. At 0100 GMT China releases its non-manufacturing PMI for July. The prior reading was 56.7. The HSBC services PMI will be released 90 minutes later. The prior was 52.3.

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