The ECB sure knows how to pack a punch and boy, what a punch that was yesterday.
I have to admit that I definitely underestimated Lagarde but the market reaction was quite something. I'm still skeptical about how the rates market is front-running the ECB rate hikes though. A 10 bps move in June means that the ECB would have to end APP purchases in the next few months and that is unthinkable for now.
The central bank would need time to prep the market otherwise there would be a major tantrum in bonds surely. If anything, a Q3 or Q4 rate hike seems the most hawkish scenario in my view and even then, who is to say if they won't be getting their initial inflation forecast right i.e. price pressures seen easing later in the year.
Anyhow, the euro rallied and we're seeing it keep pace once again today with EUR/USD breaching its 100-day moving average and looking towards the January high @ 1.1483.
Elsewhere, major currencies are more tepid while US futures are bouncing after the Amazon earnings beat - recovering some losses from the selloff yesterday.
All eyes today are going to be on the US non-farm payrolls report, so expect the market mood to remain more tentative until then. That said, we are still seeing further reverberations from yesterday's central bank hawkishness with bond yields pushing higher once again. 10-year Treasury yields are up 2.2 bps to 1.849% with 2-year yields up 2.9 bps to 1.221% currently.
0700 GMT - Germany December industrial orders
0830 GMT - Germany January construction PMI
0930 GMT - UK January construction PMI
1000 GMT - Eurozone December retail sales data
That's all for the session ahead. I wish you all the best of days to come and good luck with your trading! Stay safe out there.
