The Dollar Finds Better Footing

Yesterday's ECB figures indicated under the Pandemic Emergency Purchase Program, it settled only 12 bln euros of purchases. This was below the recent averages and got the chins wagging, but there two important mitigating factors. First, the purchases are net of redemptions, and last week there was a large redemption (~31 bln euros in France). Second, the strong upward pressure on yields was seen last Thursday and Friday, after the settlement cut off. We suspect ECB President Lagarde will be questioned about its purchase pace at next week's ECB meeting. She will likely emphasize the official commitment to ensuring easy financial conditions and extremely flexible asset purchases. Recall the difference. The Fed is committed to buying $80 bln of Treasuries and $40 bln of Agency MBS a month. The ECB has what it calls an envelope--a sum it grants itself (1.85 trillion euros) that it can use as it sees fit. It can use less, and if more is needed, it can increase it again.  

A few other data points garner attention today. First, German data disappointed. February unemployment unexpectedly rose by 9k. Bloomberg's survey found a median expectation for a 10k decline. Instead, the increase was the first since last June. The unemployment rate was unchanged at 6.0%. Separately, Germany reported another sharp decline in retail sales. The January slump of 4.5% contrasts the Bloomberg survey looking for a 0.3% gain after the more than 9% decline in December (revised to -9.1% from -9.6%). The aggregate figure for the eurozone's retail sales is due Thursday and was expected to have fallen by 1.4% after a 2.0% gain in December. It seems clear the risks are on the downside. The UK's Nationwide reported a stronger jump in house prices than expected. The 6.9% year-over-year increase was more than the 5.6% projected. It is the seventh increase in the year-over-year rate in the past eight months. 

The euro was pushed below $1.20 as the European session began. The dip was greeted with fresh buying. Initial resistance is seen in the $1.2050 area, and there are expiring options struck at $1.2065.Last month's low was near $1.1950. Since 1 December 2020, the euro has closed below $1.20 once (February 4). Sterling extended its pullback and traded below its 20-day moving average (~$1.3890) for the first time since February 4. In the European morning, it is recovering from the test on $1.3860.Nearby resistance is around $1.3900 and then $1.3930.  

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Read more by Marc on his site Marc to Market.

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