Mario Draghi caves

SUMMARY

ANALYSIS

USDCAD

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.

USDCAD DAILY

USDCAD HOURLY

OCT CRUDE OIL DAILY

EURUSD

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.

EURUSD DAILY

EURUSD HOURLY

DEC GOLD DAILY

GBPUSD

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.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

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.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

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.

USDJPY DAILY

USDJPY HOURLY

GERMAN 10YR BUND YIELD DAILY

Charts: Reuters Eikon

About the Author

Erik Bregar - Director, Head of FX Strategy

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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