The ECB has announced that it will downsize (not taper) bond purchases by €30 billion per month while extending its quantitative easing program until September 2018
As secrets go, the European Central Bank
announcement wasn’t a well-kept one. In fact, the details had leaked earlier this week. Nevertheless, traders reacted like they were surprised, stunned, even shocked.EURUSD chart
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collapsed following the announcement. It plunged 1.5%, falling from 1.1812 prior to the statement to just 1.1641 by the end of Thursday, and breaking below its 100 day moving average in the process. The longer-term technicals target further losses to the 1.1510 area following the break of support at 1.1670.
Traders were not impressed by the lack of resolve to the QE downsizing story. The ECB left the door wide open to scrapping the program. The statement read
“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the APP in terms of size and/or duration".
EURUSD set the tone for the US dollar against the other major currencies, but it had help from reasonably good US economic data, more Fed chair appoinntment rumours, the Spain/Catalonia crisis and news that the House has passed the budget bill. Initial Jobless claims and Wholesale Inventories releases were a tad better than forecast. The Catalonia president Carles Puigdemont said he would not call a snap election, without guarantees from the government over Article 155.
Tensions eased ... Catalonian leader Carles Puigdemont said he would not call a snap election without guarantees from Madrid over Article 155, the clause that allows the central government to suspend regional autonomy. Photo: Shutterstock
climbed steadily but could not get any traction above ¥114.00 due to the usual excuse of “exporter offers". GBPUSD
suffered following the release of soft Distributive Trades Survey data and broad US dollar strength. USDCHF
rallied with the EURUSD retreat.
Friday Focus: US GDP data is the main event for Friday. An upside surprise would fuel additional US dollar buying, supported by the dovish ECB sentiment and the prospect of US tax cuts being announced before the end of the year. A lower than expected result may be ignored and blamed on the weather.
Source: Saxo Bank
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– Edited by Robert RyanMichael O'Neill is an FX consultant, currency strategist and author of the Trade of the Day at Loonieviews.net. Follow Mike or post your comment below to engage with Saxo Bank's social trading platform.