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ECB Governor Draghi continued to hog the spotlight during the New York session as his dovish tone on inflation forced the euro to return its recent gains.

  • Draghi: Downside risks have diminished, data confirms broad recovery
  • Draghi: Underlying inflation remains subdued, QE to remain until it picks up
  • Draghi: QE can be expanded or extended, no discussion of June options yet
  • Draghi: Interest rates to stay at current low levels even past QE
  • U.S. headline durable goods orders up by 0.7% vs. 1.5% forecast
  • U.S. core durable goods orders down by 0.2% vs. projected 0.4% gain
  • U.S. initial jobless claims at 257K vs. 241K consensus
  • U.S. pending home sales down by 0.8% vs. projected 0.6% dip

Major Events:

ECB press conference – Talk about giving mixed signals! ECB Governor Draghi’s presser after their decision to keep monetary policy unchanged contained mixed views on growth and inflation, making it difficult for market watchers to gauge what the central bank’s next move might be.

Draghi started off by saying that downside risks in the euro zone have diminished and that incoming data continues to confirm that the economic recovery is broad and strong. He added that leading indicators and surveys suggest that this pickup will carry on but warned that growth prospects are being dampened by the sluggish pace of structural reforms.

When it came to the subject of inflation, the ECB head honcho admitted that underlying price pressures remain subdued and that they intend to keep QE in place until inflation picks up. He even mentioned that their easing program can be expanded or extended depending on core inflation measures but that they haven’t discussed their options for June just yet.

In response to questions on interest rates, Draghi noted that rates will remain at their current low levels even after QE, reiterating that the Governing Council hasn’t agreed to remove their easing bias linked to inflation. Although policymakers are seeing tentative signs of price pressures picking up, they couldn’t help but worry about the sharper than expected drop in March inflation.

Mostly downbeat U.S. reports – Economic data from Uncle Sam failed to impress as most of the medium-tier readings came in the red.

Headline durable goods orders for March ticked up by 0.7%, less than half the projected 1.5% gain and far below the previous 1.8% increase. The core version of the report printed a surprise 0.2% drop instead of the estimated 0.4% gain. Components of the report indicated that the weakness was mostly due to slower demand for automobiles, fabricated-metal products and machinery.

Meanwhile, initial jobless claims came in at 257K, reflecting more job losses compared to the previous 243K figure and the projected 241K reading. Pending home sales showed a steeper than expected 0.8% drop versus the expected 0.6% decline while the goods trade deficit widened from $63.9 billion to $64.8 billion to reflect weaker U.S. shipments.

Major Market Movers:

EUR

It was rally-and-reverse mode for the shared currency, which got its spirits crushed after Draghi didn’t sound too chipper about inflation.

EUR/USD pulled back from a high of 1.0902 to a low of 1.0851, EUR/JPY fell from 121.90 to 120.75, EUR/GBP is halfway through filling its weekend gap as it dropped to .8420, and EUR/AUD is down to the 1.4500 area.

Watch Out For:

  • 12:30 am GMT: Japanese household spending (-0.6% expected, -3.8% previous)
  • 12:30 am GMT: Japanese national core CPI (0.2% expected, 0.2% previous)
  • 12:30 am GMT: Tokyo core CPI (-0.2% expected, -0.4% previous)
  • 12:50 am GMT: Japanese industrial production (-0.6% expected, +3.2% previous)
  • 12:50 am GMT: Japanese retail sales (1.6% expected, 0.2% previous)
  • 2:30 am GMT: Australia PPI q/q (0.3% expected, 0.5% previous)