Euro May Fall as ECB President Draghi Strikes Dovish Tone

TALKING POINTS – EURO, ECB, CHINA, YEN, AUSTRALIAN DOLLAR

• Euro may fall as ECB’s Draghi strikes dovish tone on rate hike timing
• Japanese Yen up, Aussie Dollar down on risk aversion in APAC trade
• Chinese stocks swoon as EU, US deal weakens Beijing in trade wars

All eyes are on the ECB monetary policy announcement in European trade. No changes are expected after QE asset purchases were put on autopilot through year-end at last month’s conclave. Traders will closely parse comments from President Mario Draghi for clues on the timing of subsequent rates hikes however.

Priced-in expectations reveal markets don’t expect overt tightening until the fourth quarter of next year. Still, a cautious upturn in economic data outcomes in recent weeks has echoed in the outlook, with the probability of an October increase ticking up from 58.7 to 80 percent.

The ever-cautious Mr Draghi might look to cool even this tepid optimism when he speaks at the press conference following the policy meeting. If markets read his pronouncements as relatively dovish compared with baseline projections, the Euro is likely to trade broadly lower.

The anti-risk Japanese Yen rose while the sentiment-sensitive Australian Dollar traded lower as risk appetite soured in Asia Pacific trade. Chinese shares led regional bourses lower, with the benchmark CSI 300 index shedding nearly a full percentage point.

The move comes in the wake of an accord between Donald Trump and European Commission President Junker that will see the EU buying more US soya beans, softening the blow from a recent Chinese tariff increase and weakening Beijing’s hand in its trade spat with Washington.

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ASIA PACIFIC TRADING SESSION

EUROPEAN TRADING SESSION

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

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

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