So Draghi announced his plans to purchase asset backed securities yesterday at the Naples meeting. But first I should start by just mentioning that rates were left unchanged – it’s not like they had much room to do more with that policy lever anyway! The overall impression was that the plan was vague. There’s no hard number in terms of the size of the purchases, and the ECB Governor appears to be backtracking from expanding the balance sheet of the central bank by 1trn euros. The net result? The euro rallied after his speech. From about 1.2615 when the ECB was all everyone was looking towards, EUR/USD bounced as high as 1.2690 before starting to tail off again. Analysts believe the hawks in the council won this battle, preventing the doves (Draghi included) from announcing anything too specific and bold. For now, the market has no choice but to doubt the ability of the central back to stop the balance sheet from continuing it’s gradual contraction. We’ll know more in November, but there doesn’t seem to be the requisite political support for the type of programme that would guarantee they achieve Draghi’s aims, you need France and Germany on board, and neither seem to want to play along.


Price action yesterday wasn’t just about the euro however. In the bigger picture the dollar weakened across the board. USD/JPY has been particularly interesting, with the possibility that we’ve seen the highs on that pair for the next few weeks, and possibly months. In addition to this, or perhaps because of this we also so swings in the equity markets with the S&P making a low in the late afternoon (a roughly 4.6% decline from the recent record high), before later making a recovery of sorts. Generally we’re continuing to see mild reversals from the extremes of yesterday this morning as positions are squared in front of the big data out this afternoon. For those who don’t know already it’s the first Friday of the new month which of course always means we get employment data out of the US. Employment growth, and more specifically earnings growth remains key to the Federal Reserve’s decision making process. While the employment data has been decent all year, members of the Reserve Board are unlikely to view the recovery as sustainable until workers are able to bid up wages, and thus boost demand in the US economy.


This morning we also expect retail sales data for the whole Eurozone. The expectation is for a slight decline in the year on year number, albeit growth is still anticipated. Disappointment here will do nothing to aid the health of the single currency. I must say that I’ve been expecting a recovery of sorts in EUR/USD for some time now, and it may yet happen, but it’s remarkable how resilient this trend has been to date. As I’ve mentioned before when both sides of the pair have themes backing their respective moves it’s hard to slow the trend.