Draghi Dazzles, Euro Slumps

The market desperately wants to know what the ECB plans to do next. Will they cut rates, narrow the corridor or implement negative deposit rates? How about QE?

There was no action Thursday as expected and there wasn't any line from Draghi that necessarily pointed one way or the other. He said virtually everything was discussed, including QE and negative rates. On inflation he said the balance of risks was still even but warned all options were on the table. One telling line was that the longer inflation stays low, the higher the risks.

The overall impression is that the ECB is watching the data very closely and could act. The mastery was leaving so many questions in the market's mind and not committing to anything. Many traders were looking for some strong anti-euro jawboning but his subtle hints that action could come did the job. The euro slumped to a one-month low of 1.3698 from 1.3760.

Another highlight on the day was the ISM non-manufacturing index at 53.1 compared to 53.5 expected. The report weighed on the US dollar, albeit gently. The optimists in the market are hoping for signs of a quick snapback in March but there was nothing in the numbers to suggest it. The employment component jumped but it merely erased a sharp drop the month before.

Initial jobless claims were also worse than expected at 326K vs the 317K consensus, ending an upbeat streak. The US trade deficit was also disappointing, leading to some downgrades to Q1 GDP estimates to as low as 1.2%.

The week closes out in quiet fashion in Asia, which will give traders a chance to prepare for non-farm payrolls.