Article Highlights

  • ECB launches first ever QE program, weighs on EUR, GBP, and NZD
  • US initial jobless claims: 307K vs. 300K expected, 317K previous
  • US FHFA house price index: 0.8% vs. 0.3% expected, 0.4% previous
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We expected fireworks from the ECB yesterday, and Super Mario sure delivered! Here’s what happened to the major currencies after the forex event.

The biggest story during the U.S. session was ECB President Mario Draghi’s press conference following the central bank’s decision to keep its rates on hold at 0.5%. In an expected (but still historic) event, the ECB launched its first quantitative easing program.

The ECB would pump 60 billion EUR ($68B) every month from March this year to September next year, or at least until inflation picks up. The bulk of its purchases will go to government debts, but it would also buy private debts and allocate money for cheap loans to banks.

The ECB will only take about 20% of the risk though, which means that euro zone’s national central banks would bear the bulk of the losses should governments default on their debts. By the end of the program the ECB would have spent at least 1 trillion EUR on its QE program. Talk about commitment!

Not surprisingly, the ECB’s plans to pump money into the economy weighed on the euro. EUR/USD saw a 271-pip drop to 1.1361 (-2.33%), an 11-year low, while EUR/JPY fell by 217 pips (-1.59%) to 134.69 and EUR/GBP dropped by 83 pips (-1.08%) to .7571.

The move also weighed on both the pound and the Kiwi, possibly on speculations that the BOE and RBNZ would reverse their hawkish stances and jump on the central bank easing bandwagon. If you recall, the Bank of Canada, Reserve Bank of India, Swiss National Bank, and Bank of Egypt have all cut their interest rates this week.

GBP/USD dropped by a whopping 188 pips (-1.24%) to 1.5007 and GBP/JPY fell by 88 pips (-0.49%) to 177.91 while NZD/USD suffered an 83-pip drop (1.10%) to .7489.

The biggest gainer in the forex block was the Greenback, which found support from weaknesses of high-yielding currencies and a rally in equities. USD/JPY rallied by 88 pips (+0.75%) to 118.55, USD/CHF shot up by 197 pips (+2.31%) to .8732, and AUD/USD dropped by 108 pips (-1.33%) to .8019.

The week’s not over yet! Today’s Asian session forex traders have to deal with China’s HSBC flash manufacturing PMI scheduled at 1:45 am GMT. Analysts are expecting a slip from 49.6 to 49.5 reading. Watch out for significant hits or misses, as it could extend weaknesses (if it misses) or inspire significant retracements (if it prints better-than-expected) for commodity-related currencies.

Good luck and good trading!

See also:

London Session Recap

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