ECB confirmed what investors had already known – Market Overview

ECB confirmed what investors had already known – Market Overview

The European Central Bank confirmed yesterday that the volume of asset purchases increased in the past week.

This explains the downward pressure on the euro that continues to occur today, and the better performance of the European stock indices compared to their North American counterparts.

The ECB meeting scheduled for tomorrow could offer more insights into the bank's position and monetary policy direction. Although no change in monetary policy is expected, the market thinks the tone of Christine Lagarde's speech will be more dovish. Should this be confirmed, the downward pressure on the euro could intensify, something that would otherwise be seen as beneficial since the single currency's strength acts as a counterweight to the monetary stimulus policies that the central bank has implemented to combat the adverse effects of the COVID-19.

The EUR/USD pair remains around 1.1900, a reference level below which it could work its way down to at least the next reference level located around 1.1840, the lowest level hit yesterday.

On the other hand, the behavior of the U.S. Dollar will also be decisive for the future evolution of this pair.

What’s on the agenda today?

So far, the North American currency has been strengthening due to the rise of long-term bond yields. After a downward correction that occurred yesterday, the market awaits the publication of the CPI data in the United States and the result of the 10-year bond auction.

The year-on-year CPI data for February is expected to rise to 1.7%, a value close to Fed's inflation target (2%). Any data higher than expected would produce an increase in inflation expectations and long-term interest rate hikes, strengthening the U.S. Dollar. It is also essential to watch the Core CPI data, which is expected to be 1.4%, year-on-year terms. The core CPI excludes the food and energy components due to their high degree of seasonality and is a more reliable indicator of inflation levels.

On the other hand, the result of the Tnote10 auction that will take place this afternoon should also be a must-watch indicator for the future behavior of the North American fixed income market, and therefore for the future evolution of both the dollar and stock exchanges. Yesterday, the 3-year bond auction showed substantial demand that did not significantly impact the markets.

At the moment, the 10-year bond auction is pressured down around the 132.00 level with the yield in the 1.56% zone.

Sources: Bloomberg, Reuters.

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