Euro jumps after ECB; Stocks pause after recent gains

Summary:

• ECB keep rates on hold; TLTRO details revealed

• GC deliver less dovish message than expected

• EURUSD peeks above $1.13; Dax pulls back

• Mexican Peso volatile to trade headlines

• NFP crucial going forward

As broadly expected the ECB left borrowing costs at the current levels. On top of that, the central bank reveal details regarding the new TLTRO programme. The details look a bit disappointing as there were speculations about even a lower cost. A new TLTRO round has been priced at the main rate + 10 bps ECB says

ECB President Draghi has failed to significantly walk back on the message delivered in the earlier rate decision, with stocks extending their slide and the Euro rallying above the $1.13 handle. The German Dax is often one of the most sensitive markets over ECB decisions and today proved no different with the benchmark falling 170 ticks from high to low as investors became skittish at the absence of an overly dovish message from the Governing Council.  US stocks have enjoyed a strong move higher in the past couple of sessions, but the drop in the Dax could be seen as a warning sign for Wall Street bulls. 2842 possible resistance.

There’s been some pretty wild swings in the Mexican Peso of late, as rumour and counter-rumour surrounding US tariffs are causing traders to scramble and and this has caused a marked pick-up in volatility. Comments yesterday evening from White House trade representative Peter Navarro that the tariffs may not in fact be implemented caused the Peso to attempt a recovery before two rating agencies slashed their credit ratings on Mexico in a move that saw all the gains erased.

The threat of US tax levies comes in an attempt to apply more pressure on their southern neighbour to control the flow of migrants at the border. The USD/MXN pair was among the most volatile during the 2016 US election campaign and Trump’s latest move to politicise economic tariffs have threatened to cause another run on the Peso.  

The markets are sure that the next move from the Fed will be a cut in interest rates. In fact such cut is fully discounted by September and seen by many as soon as this month. In this context, the labour market developments might be decisive for major markets like EURUSD or US500. Read our full analysis here.