The Big Turn

Reversing a trade like EUR/USD is like turning an ocean liner – it's a slow process. Positive signals continue to trickle in as the euro was one of the top performer along with GBP and EUR on Thursday while the kiwi lagged. The Asia-Pacific calendar is light but expect many comments from finance ministers in the day ahead with the G20 meetings ramping up.  A new Premium trade has been added, backed by 3 charts and 6 factors and is considered a partial hedge to Wednesday's trade a synthetic product for a key emerging FX development.

The second day of March madness in financial markets was all about the Bank of England. Forbes delivered a surprise by voting for a rate hike and that gave the pound a lift. In an op-ed, she said Brexit uncertainty has held down wages and that inflation is coming.

But the ECB's Nowotny managed to get our attention. Praet said the outlook is now better than it has been in many years and Nowotny said a rate increase may be on the way. He also said the deposit rate/refi rate corridor could narrow.

In addition, the Dutch election results argue that populism is on the wane and French polls have been steady. Perhaps the most impressive development was the euro's resilience in early March,with EUR/USD gaining despite the concerted hawkishness from Fed talk 3 weeks ago as well as solid US data.

We will be watching the economic data closely in the weeks ahead but we don't see the comments from Nowotny and Praet as a coincidence. They are two of the most-experienced core members of the ECB and they aren't prone to comments that stray from Draghi's thinking. 

An extended policy of easing has submarined the euro from 1.60 to 1.06 and even if there is no scope for a full retracement, some stability or a hawkish turn from the ECB could easily mean 1.15 or 1.20.

Another central bank that is overdue for a hawkish comment, or at least a less-dovish one, is the Bank of Japan. That didn't happen Thursday and Kuroda was defiant but the shift in global central banking tone is beginning to look like dominos falling and when the BOJ changes, yen crosses will have a long way to fall.