Caught Flat Footed

An emphatically hawkish Mario Draghi suggests the ECB policy is on track while all but declaring victory over the Eurozone inflation conundrum. Apparently, the ECB has taken a giant leap towards ending the European Central Bank’s ultra-loose monetary policy, sending the euro and German yields higher as investors piled into the Euro as the ECB hints that the end of crisis-era stimulus measures is upon us.The markets vigorously repriced Eurozone assets sending EURUSD rocketing higher led by EURJPY which traded at the highest point in over a year.

The voracity of the move suggest traders were caught flat-footed given the ensuing scrum for topside EUR exposure.And while we should expect some profit taking, the next logical destination for EUR JPY is likely a test 128 as the market continues repricing EUR assets.

Competing for headline space, Dr Yellen did not rock the boat, but the dollar looks increasingly vulnerable and could topple at the slightest wobble in US economic data. Dollar Bulls could l be in for a reality check when PCE comes into focus at week's end more so if the soft inflation narrative plays on.