The ECB delivered what traders were expecting. They announced that the quantitative easing program (QE) would end in December. EURUSD rallied to 1.1848 from 1.1825 on the news and then plunged to 1.1718 because the ECB statement also said “the key ECB asset rates to remain at their present levels at least through the summer of 2019 and in any case as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path”.
Overnight action was a tad different. The upcoming ECB meeting took the spotlight from yesterday’s FOMC meeting. FX markets are trading like the Fed actions and statement were dovish. They weren’t. The FOMC raised inter rates by 0.25%, which was expected but added another rate increase to their 2018 predictions. Instead of three hikes in 2018, the Fed is projecting a total of four. That is a hawkish forecast. The language in the statement was tweaked enough to leave no question that the Fed is upbeat on the economy.
The immediate reaction to the Fed was to buy US dollars. It didn’t last. Suddenly traders were looking ahead to today’s ECB meeting. They expect the ECB to announce the date when QE will end. Mario Draghi continues to believe that “substantial stimulus” is still needed and recent Eurozone data supports his view. This morning’s EURUSD bulls may be this afternoons EURUSD bears.
The US dollar ended Wednesday’s session with small losses across the board except against the antipodean currencies which were flat. It added to those losses overnight and opened in New York with a negative bias.
EURUSD climbed from 1.1789 to 1.1829 on fears of a hawkish ECB and headlines suggesting the US will levy fresh tariffs on China.
GBPUSD rallied to 1.3445 from 1.3371. Prices accelerated above 1.3410 when UK Retail Sales rose 1.3 %, m/m in May, well above the 0.3% gain in April
USDJPY drifted lower, undermined by soft US Treasury yields and concern about China/US trade.
The Australian dollar was the only G-10 major currency to lose ground against the greenback. AUDUSD dropped on weaker-than-expected employment data. The negative Employment headline (Actual 12,000 vs forecast 18,000) was offset by a dip in the unemployment rate, from 5.5% to 5.4%. Weaker than expected Chinese Retail Sales and Industrial Production data didn’t help.
The Canadian dollar was extremely whippy. It traded in a post-FOMC range of 1.2949-1.3046 and a narrower 1.2949-1.2990 range overnight. USDCAD moves are tracking broad US dollar moves. .Heightened Canada/US trade tensions, falling oil prices, and widening CAD/US interest rate differentials suggest USDCAD losses are limited, in the short term.
The US economic data includes Jobless Claims, business Inventories and Retail Sales. The Canadian data is the second tier.
USDCAD Technical Outlook
The intraday USDCAD technicals are bearish below 1.2990. USDCAD is filling the gap from from last Friday’s close/Monday’s Asia open but as long as prices are above 1.2895, the current move is a correction and not a trend change. For today, USDCAD support is at 1.2950 and 1.2920. Resistance is at 1.2990 and 1.3050
Today’s Range 1.2940-1.3020