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By xemarketanalysis September 12, 2019 11:24 am
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    XE Market Analysis: The ECB Rolled a Six-Sided Die Hoping for a Seven

    OVERVIEW

    • Inflation is in the spotlight today in the US and Europe after data releases from the US Fed and ECB
    • Operation Yellowhammer documents paint a bleak picture of no-deal Brexit scenarios
    • WTI crude prices down on overly abundant supply

    HIGHLIGHT

    The European Central Bank and US inflation took centre stage in the financial market today. The Governing Council of the ECB delivered a three-pronged attack: reducing the interest rate on the deposit facility by 10 basis points to -0.50%, restarting the asset purchase programme (APP) at a monthly pace of €20 billion as from 1 November and introducing a two-tier system for reserve remuneration. 

     
    The Euro, however, plunged 0.4% on the news as these monetary measures may prove to be not enough of a monetary loosening to prop an ailing Eurozone. 
     
    The currency market remains volatile as participants continue to digest the incoming news. Oil is trading lower 1.50% this morning, as a result of lower demand and a return to a supply glut. Commodity-linked currencies are expected to trade with a downside bias.

    US DOLLAR

    On the other hand, core CPI in the US rose 0.3% in August, beating market estimates. The index now stands at 2.4% over the past 12 months (the largest increase since July 2018), quashing any hope of a further rate cut from the US Fed next week. The market remains volatile as participants continue to digest the incoming news.

    President Trump delayed new tariffs on Chinese products, providing hope that there is progress in the US-China trade negotiations.  

    BRITISH POUND

    GBP/USD dips below key 1.2300s amidst broad-based US dollar strength. The details of Operation Yellowhammer failed to cause lasting concerns to the pound. The market believes the worst-case scenario could be avoided altogether. With less than 50 days to go until (the scheduled) Brexit day of October 31st, all the options are still alive, and a prolonged consolidation of GBP/USD could eventually lead to heightened volatility and breakout.

    EURO

    EUR/USD jumped to 1.1070s on a kneejerk reaction following the ECB’s decision to cut rates. However, there is now a general sense of disappointment as the details of the decision starts to seep into the market. 

     
    The ECB is leaving the door open for further loosening to meet its mandated objective begins on the bond purchases in November but the introduction of a two-tier system for reserve remuneration, exempting some holdings from the negative deposit facility rate is being considered having a negating overall effect. The pair is expected to challenge the lows of 1.0950s.

    CANADIAN DOLLAR

    The Canadian dollar sees its recent rally against the greenback coming to an end after US inflation surprised the market to the upside. USD/CAD is up 0.2% as of this writing. We are seeing downward pressure coming from the oil futures market. WTI is down by nearly 2%, trading $ 54.50 a barrel. OPEC+ sees a risk of supply glut returning to the market as a result of higher shale production and subdued global demand.

    AUSTRALIAN DOLLAR

    Positive signals around US-China trade talks seem to be buoying the Aussie dollar. AUD USD now sits at 0.68760 after hitting a high of 0.68910.GBP EUR 12 September 2019 Close 1.11687

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