The US dollar remains on the defensive in the unwind from the Fed trade.

It’s tough to pin down what’s behind the euro rally. Earlier in the week, you could pin it on hopes for a ceasefire in Ukraine and stability in sanctions but with Russia cooling those hopes for today (leading to the rally in oil and gold) that’s a tough sell today.

The ECB needed to do a couple of things in this meeting and they pretty much nailed it by offering some commitment to end bond purchases in Q3 this year.

In doing so, they offer up themselves some flexibility (the caveat being that they could change the schedule depending on the data and outlook) but it also gives the market a rough idea of when rate hikes could follow after. Adding to that, considering that rate hike bets were pared back in the past week, the euro is also getting a lift so they are able to stay away from any direct verbal intervention.

Two birds with one stone.

The euro is now up and above 1.1100 against the dollar currently but we’ll see if that can hold into the daily close.

That could open the path towards testing the 50.0 retracement level @ 1.1150 next. Lagarde’s press conference is up next and I would expect that to add more colour to the statement, so we’ll see how that goes.