Intraday Market Thoughts

Previewing ECBs Three Options

by Patrik Urban
Jun 6, 2012 12:31

We look at the ECBs 3 options as we head into todays decision (11:45 GMT); Australian Q1 GDP rose; UK construction PMI declined; Eurozone GDP revised lower y/y; German industrial production fell; JPY weakens. Market turns to the ECB rate announcement and press conference and later in the session to the FED's Beige book. The latest on our Intermarket Insights is also found below.

Markets are aware of Draghis desire for further centralized supervision & unified banking, but most of all aware of the central banks remaining bullets, which include:

1) Slashing the refinancing rate to 0.5% from 1.0%-- could be used for a new round of LTRO at lower rate & but not necessarily 3-year period (seen as among last remaining solutions & unlikely at this time unless liquidity deteriorated further) ;

2) Renew its bond purchases, which have been inactive since late January (could begin gradually before more LTRO);

3) Extend Emergency Loan Assistance to Spanish banks (highly unlikely without formal IMF assistance).

EURUSD came under pressure at the beginning of the Asian session after Moody's downgraded several German and Austrian banks but later moved higher as sentiment improved. AUD rallied after Q1 GDP bested expectations and rose 1.3% from 0.6% q/q and 4.3% from 2.5% y/y.

London traders were able to push the buck slightly below yesterday's lows but it was able to gain back a portion of its losses. Major European equities are gaining about 1.75%.

UK construction PMI fell in May to 54.4 from previous 55.8 marking continued expansion. However, the pace of growth reached three month low and the confidence in business outlook dropped sharply compared to previous month. GBPUSD trades around 1.5465.

Q1 Eurozone GDP remained unrevised at 0% q/q but was revised lower to -0.1% y/y. German industrial production April dropped 2.2% after growing 2.2% a month earlier.

JPY continues to weaken across the board following yesterday's finance minister Azumi's comments that G7 agreed to counter extreme fx moves. However, no other G7 member was able to confirm. USDJPY trades above 79.00 support.

The ECB rate announcement is due at 7:45 am and the minimum bid rate is expected to remain at 1.00%. Unless the market gets a surprise 25 bps cut, the impact will be limited as traders will wait for the ECB press conference that starts at 8:30 am ET. The ECB president Draghi is likely to deliver dovish comments and signal more easing in months ahead.

The key US release will be the FED's beige book that is due at 2:00 pm. It is likely to repeat that the economy grows modestly but it could be more cautious as several indicators have deteriorated.

Three speeches on the US economic outlook could also impact the market. FOMC member Lockhart speaks at 9:30 am, FOMC member Williams delivers his speech at 3:30 pm and FOMC member Yellen speaks at 7:00 pm.

GBPUSD longs hit all targets, AUDUSD shorts stopped out, while shorts in EURUSD, USDCAD longs and gold shorts remain in progress. For direct access to today's Intermarket Insights, click here: ; Non Subscribers can join here:


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