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Volatility was a bit subdued during today’s morning London session, likely because traders are waiting for the ECB’s presser. Even so, there was enough action to keep the session interesting since pound and Kiwi pairs were on the move.

  • Swiss trade balance: CHF 3.10B vs. CHF 3.01B expected, CHF 3.12B previous
  • U.K. CBI realized sales: 38 vs. 6 expected, 9 previous
  • German HICP m/m: 0.0% vs. -0.1% expected, 0.1% previous
  • German HICP y/y: 2.0% vs. 1.9% expected, 1.5% previous
  • ECB maintains refinancing rate at 0.00%
  • Marginal lending rate maintained at at 0.25%
  • Likewise, deposit rate maintained at -0.40%
  • QE extension until December 2017 (or beyond) at €60B per month affirmed
  • ECB reiterates that rates are “to remain at present or lower levels for an extended period of time
  • Moreover, ECB emphasizes that it “stands ready to increase the programme in terms of size and/or duration
  • ECB press conference coming up; watch it live here

Major Events/Reports:

BOJ Press Conference – The BOJ decided to maintain its current monetary policy during the earlier Asian session. Not only that, the BOJ was also pretty upbeat about the Japanese economy, so much so that the BOJ’s Outlook Report used the term “moderate expansion” when referring to economic activity in Japan.

According to market analysts, this is a rather hawkish sign, since this is the first time since March 2008 that the BOJ used the word “expansion” when referring to the economy.

Given this apparently upbeat tone, BOJ Shogun Kuroda was asked about the BOJ’s exit strategy in the presser, which was held during the European session.

And Kuroda answered by saying that “inflation is around zero percent,” so “Talking about a specific exit strategy now would cause undue confusion in markets.”

Kuroda then added that an exit strategy “will involve questions like what to do with our interest rate targets and our expanded balance sheet. What to do with these would depend on economic and price conditions at the time, so it’s too early to talk about a specific (exit) plan.”

Kuroda was also asked about the BOJ’s bond buying program while targeting yields of 10-year JGBs and keeping them at around 0%. And Kuroda merely said the following:

“Since we adopted our yield curve control, the actual amount of bond buying has fluctuated from time to time. Sometimes the pace is above or below the guidance … But I don’t think we are facing any problems achieving our yield targets while having the 80-trillion-yen guidance in place.”

ECB monetary policy decision – As expected, the ECB decided to maintain its current monetary policy. As such, all rates were unchanged while monthly asset purchases will continue at a monthly pace of €60 billion “until the end of December 2017, or beyond, if necessary.”

Other than that, the ECB also reiterated that it “continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.”

Moreover, the ECB is also still giving its usual warning that:

“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.”

Anyhow, the decision to hold steady was widely expected, so market players are now waiting for what Draghi and company have to say in the upcoming ECB press conference. By the way, you can watch the ECB press conference live here.

Risk aversion in Europe – European equity indices were broadly in the red during today’s morning London session.

  • The pan-European FTSEurofirst 300 was down by 0.31% to 1,521.67
  • Germany’s DAX was down by 0.22% to 12,445.75
  • The blue-chip Euro Stoxx 50 was down by 0.43% to 3,563.50

Market analysts say that the gloomy mood in Europe was due to poor earnings reports for banks, which dragged banking shares down and soured overall sentiment.

Major Market Mover(s):

GBP – The pound showed strength from the get-go and continued to do so against most of its rivals throughout the session. As such, the pound emerged as the one currency to rule them all.

In fact, the pound’s rise during the London session means that the pound is now poised to become the king of pips (or queen if you like) for the day, since the pound managed to dethrone the Loonie. There was no clear driver for the pound’s demand, however.

CBI reported that a net balance of 38% of survey respondents reported an increase in retail sales in April, which is significantly more than the expected 6% and the 9% in March. However, the pound was already charging higher by the time that report came out.

Anyhow, some market analysts say that demand for the pound was linked to the positive survey results from yesterday, since they showed that the Conservative Party was on course for a sweeping victory, which may translate to more seats and a stronger majority.

GBP/USD was up by 8 pips (+0.06%) to 1.2888, GBP/AUD was up by 50 pips (+0.29%) to 1.7253, GBP/NZD was up by 99 pips (+0.54%) to 1.8738

NZD – The Kiwi was broadly in retreat during the morning London session, so much so that the Kiwi’s gains from the earlier Asian session got wiped out. There were no apparent catalysts, but risk aversion was the more dominant sentiment in Europe, and that may have put the squeeze on the higher-yielding Kiwi.

NZD/USD was down by 32 pips (-0.48%) to 0.6877, NZD/CHF was down by 28 pips (-0.41%) to 0.6836, NZD/JPY was down by 30 pips (-0.39%) to 76.62

Watch Out For:

  • 12:30 pm GMT: ECB Press conference; watch it live here
  • 12:30 pm GMT: Headline (1.5% expected, 1.8% previous) and core (0.4% expected, 0.5% previous) readings for U.S. durable goods orders
  • 12:30 pm GMT: U.S. initial jobless claims (241K expected 244K previous)
  • 12:30 pm GMT: U.S. goods trade balance (-$65.2B expected, -63.9B previous)
  • 2:00 pm GMT: U.S. pending home sales (-0.6% expected, 5.5% previous)