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All eyes on Draghi
German factory orders contracted for a second month in January (-0.1% m/m). The data dragged the general mood and the euro down into the European open.

Comprehensibly, the sensitivity increases as the ECB meeting, due on March 10th, approaches. The market expects at least a 10 basis point cut in deposit rates and 10 billion euros worth of expansion in monthly bond purchases.

Now the question is whether Mario Draghi could convince the markets that additional measures will help to boost the economy and bring back inflation in the Eurozone. It seems like the recent measures had little impact. We may expect Draghi to reiterate once again that the recovery is underway with modest growth in the credit market. But it still seems that the pick-up is far from what we would call sufficient, and as the time is somewhat limited as the ECB cannot carry on with its bond purchases forever. The heavy distortion in risk-to-return ratio in this market has been the primary cause of high price volatility. This being said, the speculators are out there and Eurozone sovereign bonds are in demand this morning, except for Greek bonds.

The Euro-dollar eased below 1.09 mark last week and the 200-day moving average at 1.1050 level seems like it will be sheltering offers before the ECB meeting. We have obviously seen a slowdown in the downside trend compared to what we have seen at the beginning of March. The 1.0826, just above the 1.0810 February lows have been a support, and breaking below the 1.08 support. The EURUSD could easily find itself down at 1.0725/1.0700 level. We had argued that this level would lend support to the EURUSD couple of weeks ago. Now it will all depend on Draghi’s conviction power on Thursday. Below 1.07, the attention will shift toward 1.0524, which has been the December dip before the ECB meeting, and potentially down to 1.05 mark.