Forex today: ECB dovish taper exposes downside below daily H&S
Forex today was dominated by the ECB announcements that sent the DXY through the roof and the euro to the edge of the H&S's cliff at 1.1650/70.
The ECB's announcements were dovish on the expected trimming of QE as left open-ended. The ECB's governor, Draghi, was uber-cautious in his rhetoric but the main takeaway is that while the EZ is growing, the inflation target is not there yet with some concerns over wages growth as well.
While the divergence between the Fed and ECB drove the euro lower, the dollar was bid on domestic progress within Trump's political and economic 'make America great again' agenda in that the House of Representatives approved the Senate budget which leaves the door now open for tax reform where the debate is scheduled to start November the sixth. There was also some news that Fed Yellen is out of a job next year, leaving the race for the chair between the favourites, Powell and Taylor. Meanwhile, the Fed fund futures yields are pricing the chance of a December rate hike at 95%. US 10-year yields rose from 2.41% to 2.46%, while 2yr yields initially rose from 1.58% to 1.62%.
As for the currencies that matter in Asia today, analysts at Westpac offered a post ECB recap:
"The US dollar index is up 0.9% on the day. EUR fell sharply from 1.1815 to 1.1660 (a three-month low) following the ECB’s tapering decision, probably welcome by the ECB which may have feared a reaction in the opposite direction. USD/JPY rose from 113.30 to 114.00. AUD fell from 0.7720 to 0.7666 – a three-month low. NZD fell from 0.6900 to 0.6838 – a five-month low. AUD/NZD continued to consolidate, between 1.1170 and 1.1240."
The only major event scheduled in Asia is the September CPI that is expected to hold at an annual inflation of 0.7%.
Key notes from US session:
- Wall Street regains some ground, poised to resume rally on Friday
- US Pending Home Sales: Southern decline wipes away gains - Wells Fargo
- WTI: despite strong DXY post dovish ECB, eyes a break of $53.00
- Gold pressures 1,270.00 as stocks rally on ECB
- U.S. House Republican meeting on state, local tax deduction has ended without compromise - Kevin Brady
- U.S. house clears path for a GOP tax bill with budget approval - RTRS
- ECB: Dovish taper - BBH