Euro Shorts Feeling “Comfortable” After Draghi

With 9 words ECB President Draghi blew out euro longs. The euro was the worst performer on the day while the loonie led the way. Chinese CPI is due later.

“The governing council is comfortable with acting next time,” Draghi said with the caveat they want to see the June staff projections first. Those will very likely include a downgrade to inflation forecasts and clear the way for some combination of a lower refi rate, negative deposit rates and/or QE.

The comment didn't come until 22 minutes into Draghi's press conference. The comment hit like a bolt of lightning out of the blue because his statement and early part of his comments was mundane and repeated previous comments. The euro crept as high as 1.3993 as he spoke but was hammer down more than 1.5 cents afterwards and finished at the lows of the day.

The turnaround leaves a swath of reversal patterns on the euro charts. Analysts have already begun to predict moves in June and the parade will continue in the day ahead, keeping pressure on the euro.

EUR/CAD was particularly hard hit, down 2.5 cents and falling below the 100-day moving average for the first time in a year. USD/CAD also fell below the April low of 1.0858 in a round of broad loonie strength. Some bullish comments from China's new ambassador to Canada supported the move but it felt awfully suspicious ahead of Friday's Canadian jobs report.

The US dollar wasn't particularly strong despite some decent economic data. Initial jobless claims were at 319K compared to 325K expected and 345K last week. Yellen spoke in the second day of Humphrey Hawkins and didn't make any splashing headlines but comments like “the Fed won't raise rates unless the recovery is strong” make traders wonder if they'll ever rise.

Next up is China CPI at 0130 GMT. This report isn't as important as it was a few months ago because stimulus isn't on the table but that can changed quickly. The consensus is for a 2.1% y/y rise.