Euro's rout likely to continue, losing momentum intensifying after German ZEW and ECB's stance

We could see losing momentum in euro's gains after the yesterday's disappointing trade balance number of euro zone that has missed out the forecasts at 21.0B vs 22.4B, and no cushion from today's German ZEW survey that has missed the forecasts at 52.3 vs 55.5. In addition to that, the index of euro zone economic sentiment dropped to a 15-month low of 13.6 in February from 22.7 a month earlier, missing forecasts for 10.3.

Although the ECB president Draghi sounded balanced but repeated that the central bank would evaluate and perhaps reassess the stance of its monetary policy at its March meeting.

However, he downplayed market fears about the banking sector and stressed that ECB action was supporting banks' financing conditions.

We expect the Governing Council to announce another 10bps cut in the deposit facility rate and some changes in QE parameters at its March meeting, but we do not expect any significant extension of QE to other asset classes at this point. 

The data will provide a further read of activity trends in Q4 against a backdrop of comments from ECB officials on whether and what form of further policy easing may come at its meeting of 3 December.

President Draghi's speech at the European Parliament does not change our view that the ECB is likely to cut the depo rate by another 10bps in March and announce some technical changes to the design of QE by March, as part of its semi-annual review of the programme, but we do not think there will be any announcement of material QE changes by March; specifically, we do not envisage any material size increase or time extension.

As a result, EURUSD was trading at 1.1160 after drop from around 1.1192 ahead of the release of the data, EURJPY dropped from the day high's of 128.171 to current 127.171, EURAUD's drop from day's high at 1.5652 to current 1.5576, while EURGBP was at 0.7733 from 0.7732 earlier.

Meanwhile, European stock markets were mostly lower. The EURO STOXX 50 dipped almost 0.25%, while German's DAX slid 0.45%.