Sean Callow, Research Analyst at Westpac, notes that the EUR/USD dropped about 1.5 cents in response to the ECB’s various easing measures but later reversed sharply, surging 4 cents to above 1.12 as ECB president Draghi’s press conference suggested little scope for further action. Key Quotes “The ECB delivered a stimulus package which mostly exceeded market expectations. There were four main elements: a 10bp cut in the deposit rate to -0.4% (slightly disappointing), a EUR20bn increase in the monthly pace of purchases to EUR80bn (upper end of expectations), four new targeted longer term refinancing operations, and the addition of investment grade non-bank corporate bonds to the pool of assets eligible for purchase under the QE program. Other benchmark interest rates were also lowered by 5bp, including the previous benchmark refinancing rate, now 0.0%. EUR/USD responded to the initial slate of ECB easing measures by falling from 1.0970 to a low of 1.0822. But in the early minutes of the press conference, the euro started to rally. In particular, there was short-covering as Draghi said the ECB did not anticipate any further reduction in rates. He also said that there were limits to how negative rates could go, mentioning bank profitability. EUR/USD squeezed to above 1.11 and some hours later extended to a high of 1.1218. We generally view the EUR bounce as an opportunity to sell at better levels, especially ahead of the FOMC meeting next week. USD/JPY bounced from 113.60 to 114.45 but then fell as European equities reversed their initially positive reaction to close lower. AUD/USD whipped around mostly between 0.7440 and 0.7510 but overall softened about 50 pips between early London and late NY, to 0.7455. Spot iron ore was only slightly weaker, at $57.92/tonne, while May16 Dalian futures closed -1.1%. NZD/USD consolidated its heavy fall after the RBNZ rate cut, bumping around the mid-0.66s by early Sydney, compared to 0.6780 pre-RBNZ yesterday. AUD/NZD was a little lower, easing from Sydney highs above 1.1280 to below 1.12. The US 10yr treasury yield rose from 1.86% to 1.95% - a six-week high – with most of the gains occurring in tandem with the reversal in German 10yr yields from 0.16% to 0.33% post-ECB. Markets are also looking ahead to next week’s FOMC meeting, expecting some signalling that another rate hike is likely this year (market pricing is for November).” For more information, read our latest forex news.