Draghi Cautions on Growth, ISM Near Expectations

There were no surprises in US trading and the FX market reacted by moving sideways. On the day, JPY was the best performer while AUD lagged. Coming up, China returns from a three-day holiday and HSBC releases its China services PMI. Wednesday’s Premium trades include EURUSD, EURJPY, USDCAD, Gold, Oil.

The ECB’s Draghi cautioned that downside risks to growth were prevailing in his post-decision press conference. He also said that inflation may be higher than expected this year but will return to target in 2013. The overall takeaway is that the ECB is comfortable on the sidelines but with a dovish bias should growth continue to slow.

US economic data was close to the consensus. The ADP jobs report showed 209K new positions in March compared to the 206K expected. The February report was revised higher to 230K from 216K. The ISM non-manufacturing index was at 56.0 for March, slightly below the 56.0 expected. The employment component, which is a solid proxy for non-farm payrolls, improved.

Fed policymakers may be edging away from QE3. The Fed’s Williams, who is a dove, said higher inflation has lowered the probability of more stimulus and that the Fed may need to raise rates sooner than late 2014. He was clear, however, that QE3 is not off the table.

The market was defensive coming into the session as long-term periphery yields rose by more than 20 basis points in some instances after a weak Spanish auction. Price action cool in US trading after the data and the majors moved sideways in tight ranges.

Asia-Pacific Preview

China’s return from holiday could add volatility to commodity markets. Copper fell 3.1% on Wednesday and further Chinese selling could push it below key support levels, raising questions about the strength of the global recovery. The lone data point on the calendar is the HSBC China services PMI at 0230 GMT. This is the least impactful of the PMIs but it’s slowly gaining credibility.

In today's Premium Intermarket Insights, we compare 2 market reactions to 2 similar events; the Mar 13 FOMC statement, whose slightly upbeat assessment & inflation recognition lifted USD at expense of equities & metals for only 24 hrs; and; yesterdays minutes release to the same Mar 13 meeting. For full charts & trades on these ideas, gold and yields, please click here: http://ashraflaidi.com/products/sub01/ access/?a=623 Non subscribers, please click here: http://ashraflaidi.com/products/sub01/