ECB Appears Dovish, Fed’s Williams Lifts the Dollar

The US dollar gained against all the other major currencies on Thursday and during the Asian session Friday, with the euro being among the main losers. Yesterday, the ECB appeared more dovish than expected, with President Lagarde saying that it may even take months after the APP ends, before they lift interest rates. On the other hand, NY Fed President John Williams said that a double hike in May by the Fed seems very reasonable, encouraging some more dollar-buying.


The US dollar rebounded and outperformed all its other major peers on Thursday and during the Asian session Friday. It gained the most versus CHF, EUR, and JPY in that order.

The weakening of the safe-havens franc and yen suggests that the financial markets traded in a risk-on manner, but the dollar’s surge points otherwise. Thus, in order to get a clearer picture with regards to that, we prefer to turn our gaze to the equity world. However, things are mixed there as well. European indices traded in the green, but Wall Street slid, with Nasdaq losing the most, more than 2%. In Asia, among the indices under our radar, only China’s Shanghai and South Korea’s KOSPI were open, and both of them lost some ground.

In our view, the rebound in European equities may have been the result of the ECB outcome, while Wall Street’s tumble may have been triggered by remarks from New York Fed President John Williams.

Getting the ball rolling with the ECB, interest rates remained untouched as was widely anticipated, with officials repeating that they will end their APP program in Q3. They avoided mentioning a precise schedule, stressing the uncertainty surrounding the war in Ukraine, and instead said that they will maintain flexibility. This disappointed those waiting for a firmer language, and that’s why we saw the euro starting a new leg south. At the press conference following the decision, ECB President Christine Lagarde said that the Bank will only start raising rates “some time” after the end of the APP. It could be weeks or even several months, she added, remarks that intensified the selling in the common currency.

Having said all that though, later in the day, reports citing ECB sources noted that policymakers still see a July hike as possible, and that there is growing consensus for a 25bps hike in Q3. In any case, we stick to our guns that the path of least resistance for the euro is to the downside, especially against the US dollar.

The greenback got an extra boost yesterday, after New York Fed President John Williams said that the Fed should reasonably consider raising rates by 50bps at the May meeting, another sign that even more cautious policymakers are in favor of larger liftoffs. With that in mind, even if the ECB decides to hike in Q3, there will still be divergence in the policy paths of those two Banks and thus, EUR/USD may keep drifting south. Another currency against which the euro could continue suffering, is the British pound. Let’s not forget that this currency strengthened notably on Wednesday following the further acceleration in the UK CPIs, which implies that market participants anticipate an aggressive rate path by this Bank as well, at least more aggressive than the path of the ECB.


EUR/GBP traded sharply lower yesterday, after it hit resistance near the 0.8310. That zone acted as a very strong support in the past, and it was broken to the downside on Wednesday. The fact that we saw more declines after such an important break makes the picture even more negative in our view.

At the time of writing, the rate is trading slightly above the 0.8250 support, where a break could extend the downtrend, initially towards the 0.8220 or 0.8200 zones, with the latter being the low of March 7th. If the bears are not willing to stop there either, then we may see them pushing towards the 0.8120 territory, which is defined as a support by the inside swing high of April 7th, 2016.

On the upside, we believe that a move above 0.8380 is needed for the bulls to take full charge. This will confirm a forthcoming higher high on the 4-hour chart, and may first target the 0.8410 barrier, marked by the low of April 1st, the break of which could target the high of that same day, at 0.8440. Another break, above 0.8440, could carry more bullish implications, perhaps opening the path towards the high of March 29th, at 0.8483.


The Nasdaq 100 cash index traded sharply lower yesterday, after it hit resistance at 14305. Overall, the price structure of this index remains of lower highs and lower lows since March 29th, and thus, we would consider the short-term outlook to still be negative.

Currently, the index is testing the 13875 level, marked by the low of April 12th, the break of which would confirm a forthcoming lower low and my see scope for declines towards the low of March 16th, at 13460. If the bears are strong enough to overcome that hurdle also, then we could see them pushing towards the 13020 or 1.2945 zones, marked by the lows of March 14th and 15th, respectively.

We will abandon the bearish case if we see a clear rebound back above 14305. Such a move will confirm a forthcoming higher high on the 4-hour chart and could see scope for advances towards the 14635 or 14765 zones, marked by the high of April 4th and the inside swing low of April 1st, respectively. If neither zone is able to withstand the buying pressure, then a break higher could extend the gains towards the peak of April 5th, at around 15180.


Today is Good Friday in most economies under our radar, and thus, we don’t get any major data, while most stock exchanges will be closed. The only release worth mentioning, though not a major market mover, is the US industrial production for March, with the mom rate expected to have ticked down to +0.4% from +0.5%.


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