Euro Soars in Bond Rout 2.0

The euro is in the midst of its largest two-day rally since 2009 as bets on German Bunds are blown out. The US dollar sagged badly in New York trading but the kiwi was the worst performer on the day. Up later, data on Aussie retail sales and trade is due.

The euro was in focus for Greece and the ECB decision but it was the Bund market that stole the show. The run on Bunds started Tuesday but stalled ahead of the ECB's decision. Expectations for action or meaningful rhetoric from Draghi were low but when he didn't deliver any dovish surprises, it was a greenlight for Bund sellers.

On the day, Bund yields rose 17 basis points to 0.88% -- the highest since October. The euro had a hiccup down to 1.1080 after Draghi expressed some disappointment in growth but as he blamed it on emerging markets the euro bounced back and then shot to 1.1285 and finished close to the highs of the day.

US economic data was mixed. ADP employment at 201K and virtually in line with estimates. The ISM non-manufacturing index disappointed at 55.7 compared to 57.0 expected but it's still well into expansionary territory. In any case, EUR/USD buying once again spilled over into broad US dollar selling leading to a retreat to 124.00 in USD/JPY from 124.60 and a complete retracement from earlier cable declines.

There remains a focus on Greece and Schaeuble said optimism about a deal is unjustified but at some point a squeeze like the Bund takes on a life of its own and becomes very difficult to fade.

In the short-term the focus may shift to Australian where the Aussie is in the midst of a two-day winning streak after the RBA and upbeat GDP numbers. Today's challenges are at 0130 GMT with the release of trade balance and retail sales. The latter is the main highlight and expected to rise 0.3%.

AUD/USD didn't participate in the NY squeeze on the US dollar but strong data may give it fresh life.