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Euro, Market-Wide Sentiment in the Balance on ECB Rate Decision

Euro, Market-Wide Sentiment in the Balance on ECB Rate Decision

Ilya Spivak,

Talking Points:

  • Euro, Market-Wide Sentiment in the Balance on ECB Policy Announcement
  • Australian Dollar Down on Soft Retail Sales Data, Yen Sold as Risk Recovers
  • See Economic Releases Directly on Your Charts with the DailyFX News App

The monetary policy announcement from the European Central Bank has entered the spotlight. With the Greece fiasco now on the backburner, traders will focus on the possibility that policymakers are mulling an expansion of stimulus efforts.

Oil prices have dropped to a new year-to-date low while the Euro has staged an aggressive recovery amid carry trade liquidation since the last ECB sit-down in mid-July. This will bear down on inflation in the months ahead, complicating the central bank’s return to price growth at the target rate of 2 percent.

On the other hand, ECB Vice President Vitor Constancio said the transmission mechanism between growth and prices is working at the weekend’s Jackson Hole Symposium, stressing the importance of boosting output to delivering on the ECB’s inflation mandate. Keeping in mind the pickup in Eurozone economic activity in 2015, this suggests the central bank may feel no hurry to do more for now.

Risk appetite may firm if the ECB hints at expanding accommodation, boosting the sentiment-linked commodity dollars while weighing on the Euro and Yen. This can take the form of a notable downside revision to policymakers’ inflation outlook or leading commentary from President Mario Draghi at his post-announcement press conference.

Alternatively, opting for the status quo could inspire risk aversion, weighing on high-yielding FX while offering support to funding currencies. Follow-through may prove limited in either case however as the following day’s US jobs report looms large, discouraging commitment to a firm directional bias.

The Australian Dollar faced selling pressure overnight after a report showed that retail sales unexpectedly fell in July. Receipts fell 0.1 percent from the prior month, marking the first contraction since May 2014. Economists were expecting a 0.4 percent increase.

The Aussie dropped alongside front-end bond yields, suggesting the disappointing print encouraged RBA rate cut speculation. Priced-in expectations now show traders expect at least one 25 basis point cut in the cash rate over the coming 12 months, with the probability of a reduction at next month’s meeting pegged at 59 percent.

The Japanese Yen likewise faced selling pressure as most Asian stock exchanges firmed, sapping demand for the anti-risk currency.


Asia Session

22:45NZDValue of All Buildings SA (QoQ) (2Q)1.6%0.5%1.8%
23:30AUDAiG Perf of Services Index (AUG)55.6-54.1
01:30AUDTrade Balance (JUL)-2460M-3160M-3050M
01:30AUDRetail Sales (MoM) (JUL)-0.1%0.4%0.6%
01:35JPYNikkei Japan PMI Services (AUG)53.7-51.2
01:35JPYNikkei Japan PMI Composite (AUG)52.9-51.5

European Session

07:45EURMarkit/ADACI Italy Services PMI (AUG)52.552.0Low
07:45EURMarkit/ADACI Italy Composite PMI (AUG)53.153.5Low
07:50EURMarkit France Services PMI (Aug F)51.851.8Low
07:50EURMarkit France Composite PMI (Aug F)51.351.3Low
07:55EURMarkit Germany Services PMI (Aug F)53.653.6Medium
07:55EURMarkit/BME Germany Composite PMI (Aug F)54.054.0Medium
08:00EURMarkit Eurozone Services PMI (Aug F)54.354.3Medium
08:00EURMarkit Eurozone Composite PMI (Aug F)54.154.1Medium
08:30GBPOfficial Reserves Changes (AUG)--$846MLow
08:30GBPMarkit/CIPS UK Services PMI (AUG)57.757.4Medium
08:30GBPMarkit/CIPS UK Composite PMI (AUG)-56.6Medium
09:00EUREurozone Retail Sales (MoM) (JUL)0.5%-0.6%Medium
09:00EUREurozone Retail Sales (YoY) (JUL)2.0%1.2%Medium
11:45EURECB Main Refinancing Rate (SEP 03)0.05%0.05%High
11:45EURECB Deposit Facility Rate (SEP 03)-0.2%-0.2%High
11:45EURECB Marginal Lending Facility (SEP 03)0.3%0.3%High
12:30EURECB’s Draghi Holds Press Conference--High

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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