ECB Ignites Market Volatility

? EUR/USD dips to lowest since late Jan, as ECB announces accommodative measures

? Market flips as Draghi says no further rate reductions anticipated

? EUR/USD concludes 1.3% weekly gain, following Draghi’s comments

? U.S. markets respond quite positively to ECB’s easing

? Oil prices rise to highest in 2016

Last week’s wait for the ECB’s rate announcement proved just as the European monetary policy administrator chose to execute some brave actions. The event kicked off with the notion that the ECB will do what it takes to induce some inflation, and avoid a Japanese scenario in its economy – Among other things, the ECB chose to slash the main refinancing interest rate, by 0.05%, to 0%. It also cut the lending rate by 0.05%, to 0.25%, and the deposit rate by 0.1% to -0.4%. The analyst consensus only expected the latter. The ECB further announced the expansion of its asset purchase program to EUR 80 bln per month, effective April.

Markets, needless to say, waited not to respond. The Euro weakened substantially on the expected broadening of its supply. EUR/USD dipped to as low as 1.0822 at some point, falling below the 1.0826 of March 2nd, marking its lowest level since January.

Draghi’s commentary prove difficult to digest

This, however, did not last for long going into the press conference, where President Draghi said that he doesn’t “anticipate that it will be necessary to reduce rates further.” This lack of anticipation, apparently, was perceived as a fairly strong signal by market participants that the ECB’s path of monetary easing is nearing, or even at, its end. EUR/USD, namely, quickly turned back, rising to as much as 1.1218, concluding, later, a 1.3% weekly gain for the currency pair.

Equity, unsurprisingly, swung along with the monetary tune. The DAX went from adding close to 3% in Thursday’s session, to ending it with a 2.3% loss. Be it investors anticipating a new currency skirmish between central banks, or just expectations for investments crowded out of the ECB and into other developed markets, volatility swiftly extended to other stock markets. The FTSE 100 gained as much as 0.9% on the ECB’s announcement, but ended with a daily 1.8% decline. In the U.S., markets opened with a very positive note. The S&P500 (SPY) traded by close to a 0.8% gain, flying back above the 2,000 point mark and peaking at 2005.08. The index then followed the trail of European markets, reaching as low as 1969 points during the middle of the daily session, it later recovered from these to conclude the day with nearly no change.