Draghi Sparks Euro Recovery

The euro has recovered from the brief dip below $1.31 to rise through yesterday's North American high.  Draghi has not sounded as dovish as the market expected.   He recognizes that the economic outlook is less certain, but did not seem to be an in hurry to take more action. 

He indicated a rate cut was not even discussed today.  The impact of the LTROs is still not fully known as the last one just settled in early March.  Draghi still refers to its monetary stance as accomodative. 

He acknowledged that ECB continues to monitor the pass through of higher energy prices onto wages.  German unions are pushing for substantial wage increases.   This also contributes to the impression of Draghi being less dovish than expected. 

He has not revealed more about his idea for a growth pact which he indicated his support of last week.   Draghi made supportive comments about his native Italy and Italian 2-year yield has fallen 13 bp to below 3%. 

In terms of policy options, our sense that SMP is more likely than a rate cut any time soon or another LTRO seems to be vindicated by Draghi's comments. 

The market is likely to turn quiet now and the high of the day in the euro (~$1.3180) and in sterling  (just above $1.62) may been in place or nearly so.  The market may be reluctant to extend positions ahead of tomorrow's US jobs report.