Mario Draghi caves
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Dollar/CAD is trying to get back above the 1.3200 level this morning as broad, EURUSD-led, USD buying has swept in after the ECB’s latest decision on monetary policy (more below). US CPI for August has just been reported in-line with expectations for headline inflation (+0.1% MoM) and slightly higher than expected for core inflation (+0.3% MoM vs +0.2%). We think the market could now easily challenge the next major chart resistance area in the 1.3220s should the EUR keep falling.
OCT CRUDE OIL DAILY
The European Central Bank just announced a 10bp cut to its deposit rate to -0.50% and a re-start of asset purchases (QE) to the tune of 20blnEUR/month starting Nov 1st. See here for the full press release. EURUSD immediately spiked higher as this next round of monetary stimulus was less than the market was expecting (many were looking for a 20bp cut and QE upwards of 30-40blnEUR), but we’ve now seen a swift wave of selling come in after the ECB also dropped its calendar based forward guidance on rates and instead replaced it with a Japanese style outlook that sounds like things are going to remain this way for a long time: The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics. German bund yields have fallen swiftly back down to -0.63% and EURUSD is scrambling to find buyers (now below last week’s trend-line support in the 1.0950s). Mario Draghi is now taking the mic for the last time as ECB President to explain today’s “mini-bazooka” move and the Twittersphere is alive with jokes about how Draghi’s legacy has been one of complete failure on the monetary policy front. Live link to the press conference here.
DEC GOLD DAILY
Sterling is slipping lower with EURUSD in the aftermath of the latest ECB rate decision, but the selling has been quite moderate so far. GBPUSD has broken below the 1.2310-20 support zone and it is now testing the next key chart support level in the 1.2280-90s.
The Australian dollar is falling back from its overnight highs as EURUSD plunges lower this morning. Last night’s decision by President Trump to delay Oct 1st tariffs on $250bln of Chinese imports to Oct 15th gave the market a boost and cancelled out the market’s rather negative NY close yesterday, but that hopium seems like a distant memory now as AUDUSD falls back. Watch the 0.6860s again today in our opinion, as another close below there would be quite negative technically.
Dollar/yen poked its head above chart resistance in the 107.90s last night after the positive US/China tweet came out from President Trump, but the market has fallen back below it now as global bond yields follow German bund yields lower in the aftermath of the ECB meeting. We think USDJPY will now hunt for more buyers by taking prices lower once again. Over 1blnUSD in options expire at the 107.50 strike this morning at 10amET.
GERMAN 10YR BUND YIELD DAILY
Charts: Reuters Eikon
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