Euro awaits ECB Test

Risk trades continued the recovery on Wednesday in impressive fashion. Early in the day the euro and Australian dollar fell to new lows but turned around as New York arrived and finished at the highs. Treasury yields and equities also climbed with US 10s coming just short of the key short-term level of 1.30%.

A number of charts have shown some nice bounces but whether it's a v-shaped bottom, a bounce or the start of a period of consolidation remains very much up for debate.

US initial jobless claims and existing home sales in the day ahead will offer some evidence but the main event is the ECB decision. After the strategy review, it's unlikely there is any meaningful guidance change but Lagarde is under some pressure to offer dovish clues, particularly with delta cases climbing.

The flipside is that virtually everyone is bearish about the euro and Europe. Vaccinations meanwhile continue to rise and there is undoubtedly some pent up demand waiting to be released. If the ECB 'disappoints' by failing to deliver dovish surprise there will be a series of higher lows stretching back to November. That could be something for the bulls to build on.