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Euro Drops Before ECB Delivers Key Decision on the Fate of QE

Euro Drops Before ECB Delivers Key Decision on the Fate of QE

2017-10-23 05:02:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • Japanese Yen drops after Abe triumphs in weekend snap election
  • Euro down with German yields before ECB decision on QE pace
  • Ardern inverview sends NZ Dollar briefly lower but losses fizzle

The Japanese Yen offered the most convincing move in Asia Pacific trade, trading broadly lower as local markets cheered a win for Prime Minister Shinzo Abe in a snap election over the weekend. The ruling coalition sustained its two-thirds majority in the Diet, making it seem all-but-certain that ultra-loose monetary policy in the mold of current BOJ Governor Kuroda will remain a fixture for the foreseeable future.

The Euro likewise declined as benchmark German bond yields dropped at Monday’s trading open. The move may mark pre-positioning ahead of the upcoming ECB monetary policy announcement. That is expected to offer clarity on the fate of the central bank’s QE asset purchases, with many expecting some “tapering” of the current €60 billion/month program.

That such a seemingly hawkish prospect has led rates and the single currency lower in tandem might mean that markets have already priced it in or that prolonging the program – event at a smaller scale – will add to more stimulus on net. After all, the ECB has employed a similar smoke-and-mirrors approach previously. In fact, both might prove to be contributing factors, but only time will tell to what extent.

The New Zealand Dollar briefly spiked down to a fresh five-month low as traders reacted to comments from incoming Prime Minister Jacinda Ardern, who said that capitalism is a “failure” in her first interview since emerging victorious from post-election coalition talks. Losses proved short-lived however, with traders seemingly figuring that last week’s swoon has already accounted for such hard-left posturing.

From here, a quiet offering on the European economic calendar and a nearly empty North American docket seems to present few roadblocks for established momentum to continue. However, traders would be wise to keep in mind that the absence of a clear-cut object of speculation might make for enhanced sensitivity to headline risk, amplifying the threat posed by kneejerk volatility.

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Asia Session

Euro Drops Before ECB Delivers Key Decision on the Fate of QE

European Session

Euro Drops Before ECB Delivers Key Decision on the Fate of QE

** All times listed in GMT. See the full DailyFX economic calendar here.

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

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