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Will the ECB Taper and Lift Euro, Oil Returns to Crucial Resistance

Will the ECB Taper and Lift Euro, Oil Returns to Crucial Resistance

John Kicklighter, Chief Strategist

Talking Points:

  • Chinese GDP figures crossed the wires in-line this past session and defused the risk potential the data posed
  • Top event risk ahead is the ECB rate decision with a lingering risk that a Taper lies ahead
  • Oil rallied back to 51.50 to pressure resistance that has stood since July of last year

See the DailyFX Analysts' 4Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.

One major event risk has passed without market detonation, but we are quickly moving into the next threat to stability. This past session, Chinese 3Q GDP figures crossed the wires with the remarkable consistency we have come to expect from the country. A 6.7 percent annual pace of growth may be the slowest for the world's second largest country but it is a managed effort by officials seen as a good level to balance stable expansion and a troubling debt exposure. While skepticism remains, market participants are no-doubt letting out a sigh of relief. Broad risk aversion is once again diverted with the S&P 500 holding its three-month consolidation just off record highs.

In the meantime, other risk-sensitive areas are offering up a difficult picture. Yen crosses have struggled to do anything with the tepid bullish break seen with the likes of USD/JPY. Then there are pairs like AUD/JPY which are staged at a major channel resistance with little promising opportunity to forge a serious trend. The same dubiousness arises with AUD/USD's technical break above its wedge resistance as of late. The pair has closed above a trendline that has traced the top end of 2016's consolidation pattern, but momentum from a fundamental and technical backdrop looks suspect.

Top event risk for the upcoming session is the ECB rate decision. While its recent monetary policy meetings have rendered little market reaction, we are nearing an inevitable 'taper'. The European authority is reaching a natural limit on viable assets to purchase for its QE effort and they are facing critical evidence that the return is not justifying the cost. When it does happen, the Fed's own Taper in 2013 - and the tantrum the markets threw - will be a guideline. Oil will be another prominent spark to watch. The commodity rallied back to 51.50 and helped check USD/CAD's surge after the BoC discussed stimulus. We discuss this and more in today's Trading Video.

Will the ECB Taper and Lift Euro, Oil Returns to Crucial Resistance

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