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Forex: Euro May Rise on Neutral ECB Outcome, Yen Gains on Nikkei Drop

Forex: Euro May Rise on Neutral ECB Outcome, Yen Gains on Nikkei Drop

Ilya Spivak, Head Strategist, APAC

Talking Points

  • Euro Unlikely to Find Lasting Volatility in Status-Quo ECB Announcement
  • Yen Soared, Aussie and NZ Dollars Fell as Japanese Stocks Slid Over 2%
  • Nikkei 225 Drop May Show Lack of Confidence in Stimulus / Tax Hike Math

An interest rate decision from the European Central Bank headlines the economic calendar in the hours ahead. Expectations call for no changes in the policy mix, with target rate due to remain at 0.50 percent along with the pledge to keep borrowing costs at the current setting or lower for an “extended period”. That shifts the spotlight to the post-announcement press conference from ECB President Mario Draghi. European economic data has been broadly stable relative to expectations since September’s ECB meeting, according to data compiled by Citigroup. Meanwhile, a Bloomberg gauge of regional financial conditions showed notable improvement over the same period. On balance, that hints the emergence of significant ECB policy innovations is unlikely for the time being.

The recent emergence of political instability in Italy is likely to figure prominently in reporters’ questions, but Mr Draghi is unlikely to feel pressured to counter with anything immediately actionable. Indeed, spikes in Italy’s 10-year bond yield and 5-year CDS spread triggered by former Prime Minister Silvio Berlusconi’s latest shenanigans have been relatively modest. That suggests the markets are broadly sanguine about the situation thus far, so the ECB chief probably won’t feel pressured to step outside his comfort zone to talk markets off the ledge. On balance, the absence of a further push into dovish territory may prove supportive for the Euro in the near term, but the lack of something materially game-changing is likely to limit follow-though.

The Japanese Yen outperformed while the sentiment-linked Australian, Canadian and New Zealand Dollars traded lower in overnight trade against a backdrop of aggressive selling on Japanese stock exchanges. The benchmark Nikkei 225 equity index fell over 2 percent in a move that looked like a reaction to yesterday’s after-market announcement of a ¥5 trillion stimulus package. The program is designed to offset the negative effects of a sales tax increase slated for April on economic growth. It appears investors didn’t judge the effort to be enough of a counter-balance, which brought on sharp risk aversion.

New to FX? Watch this Video. For live market updates, visit the Real Time News Feed

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Monetary Base (YoY) (SEP)

46.1%

-

42.0%

23:50

JPY

Monetary Base - End of Period (SEP)

¥185.6T

-

¥177.0T

23:50

JPY

Loans & Discounts Corp (YoY) (AUG)

2.38%

-

2.22%

0:00

NZD

ANZ Commodity Price (SEP)

0.9%

-

0.7%

1:30

AUD

Building Approvals (MoM) (AUG)

-4.7%

-0.5%

10.2%

1:30

AUD

Building Approvals (YoY) (AUG)

7.7%

12.8%

28.8%

1:30

AUD

Trade Balance (A$) (AUG)

-815M

-400M

-1375M

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

8:30

GBP

PMI Construction (SEP)

59.5

59.1

Medium

11:45

EUR

ECB Deposit Facility Rate

0.00%

0.00%

Low

11:45

EUR

European Central Bank Rate Decision

0.50%

0.50%

High

12:30

EUR

ECB’s Draghi Holds Press Conference

-

-

High

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3402

1.3473

1.3499

1.3544

1.3570

1.3615

1.3686

GBPUSD

1.6056

1.6134

1.6165

1.6212

1.6243

1.6290

1.6368

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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