Talking Points:
Euro at Risk if ECB’s Draghi Hints Stimulus Expansion Plans in the Works
US Dollar May Rise on Upbeat ISM Data But Follow-Through to be Limited
Aussie and NZ Dollars Declined in Asia, Soft Chinese Data a Likely Catalyst
The monetary policy announcement from the European Central Bank headlines the economic calendar in the hour ahead. Economists’ consensus forecasts point to no changes this time around and the traders are pricing in a meager 3.8 percent probability of an interest rate cut. For our part, we continue to think the ECB is waiting for its Asset Quality Review (AQR) to reveal the gap in policy transmission that prevents ultra-low borrowing costs in the interbank market from being passed through into the broader economy. Deepening disinflation may prompt a rhetorical effort however, with the Euro vulnerable if ECB President Mario Draghi overtly suggests that policymakers are drawing up plans for stimulus expansion at the press conference following the announcement.
Later in the day, the spotlight turns to the ISM Non-Manufacturing Composite gauge. Expectations point to a rebound in March after the index hit four-year low in the prior month. An upbeat outcome may fuel hopes for a reacceleration of the US recovery after the allegedly weather-induced soft patch witnessed in the first quarter of 2014. This would likely erode doubts about the continuity of the Fed’s efforts to “taper” QE asset purchases and may boost the US Dollar. Follow-through may be limited however as traders await Friday’s much-anticipated Employment report.
The Australian and New Zealand Dollars underperformed in overnight trade, with the selloff seemingly linked to disappointing economic data from China. Official Non-Manufacturing PMI data pointed to a slowdown in activity growth while a Composite PMI reading from HSBC that combines factory- and service-sector performance pointed to the steepest pace of contraction since November 2011. The East Asian giant is Australia and New Zealand’s top export market and a slowdown there carries significant spillover risk, which traders may have interpreted as limiting future RBA and RBNZ policy tightening prospects.
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Asia Session
GMT
CCY
EVENT
ACT
EXP
PREV
22:30
AUD
AiG Performance of Service Index (MAR)
48.9
–
55.2
23:15
JPY
Markit/JMMA Composite PMI (MAR)
52.8
–
52.0
23:15
JPY
Markit Services PMI (MAR)
52.2
–
49.3
0:30
AUD
Retail Sales s.a. (MoM) (FEB)
0.2%
0.3%
1.20%
0:30
AUD
Trade Balance (A$) (FEB)
1200M
800M
1392M
1:00
CNY
Non-manufacturing PMI (MAR)
54.5
–
55.0
1:45
CNY
HSBC China Composite PMI (MAR)
49.3
–
49.8
1:45
CNY
HSBC/Markit Services PMI (MAR)
51.9
–
51.0
European Session
GMT
CCY
EVENT
EXP
PREV
IMPACT
7:45
EUR
Italian Markit/ADACI Composite PMI (MAR)
53.4
53.4
Low
7:45
EUR
Italian Markit/ADACI Services PMI (MAR)
51.9
52.9
Low
7:50
EUR
French Markit Composite PMI (MAR F)
51.4
51.6
Low
7:50
EUR
French Markit Services PMI (MAR F)
51.4
Low
7:55
EUR
German Markit/BME Composite PMI (MAR F)
55.0
55.0
Medium
7:55
EUR
German Markit Services PMI (MAR F)
54.0
54.0
Medium
8:00
EUR
Markit Eurozone Services PMI (MAR F)
52.4
52.4
Medium
8:00
EUR
Markit Eurozone Composite PMI (MAR F)
53.2
53.2
Medium
8:30
GBP
Official Reserves (Changes)
–
$1096M
Low
8:30
EUR
Markit EU Composite PMI (MAR)
–
54.5
Medium
8:30
GBP
Markit/CIPS UK Services PMI (MAR)
58.1
58.2
Medium
8:30
EUR
Markit EU Services PMI (MAR)
–
53.9
Medium
8:30
GBP
Markit/CIPS UK Composite PMI (MAR)
58.1
58.2
Medium
9:00
EUR
Euro-Zone Retail Sales (MoM) (FEB)
-0.6%
1.6%
Medium
9:00
EUR
Euro-Zone Retail Sales (YoY) (FEB)
0.8%
1.3%
Medium
11:45
EUR
European Central Bank Rate Decision
0.25%
0.25%
High
11:45
EUR
ECB Marginal Lending Facility
0.75%
0.75%
High
11:45
EUR
ECB Deposit Facility Rate
0.00%
0.00%
High
12:30
EUR
ECB’s Draghi Holds Press Conference
–
–
High
Critical Levels
CCY
Supp 3
Supp 2
Supp 1
Pivot Point
Res 1
Res 2
Res 3
EUR/USD
1.3646
1.3713
1.3740
1.3780
1.3807
1.3847
1.3914
GBP/USD
1.6551
1.6594
1.6610
1.6637
1.6653
1.6680
1.6723
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
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