ECB keeps monetary policy unchanged. Draghi says his legacy is "never give up".

SUMMARY

ANALYSIS

USDCAD

Dollar/CAD is meandering quietly around familiar trend-line support in the 1.3070s this morning as markets are more fixated on this ECB’s latest policy announcement.  So far there haven’t been any major movements in EURUSD but we think traders will be on guard.  December crude oil prices pulled back a touch in overnight trade but are now moving higher once again.  Yesterday’s surprise draw of oil inventories in the weekly EIA report appeared to be the catalyst for the market’s upside breakout above 54.70.  We also found it very interesting that Bloomberg reported Mexico “nearing completion” on the execution of its annual, giant, sovereign oil hedge (perhaps these flows contributed to some of the downside pressure in oil prices of late?).  The US Durable Goods figures for September were just reported and they missed expectations (-1.1% MoM vs -0.8% and -0.3% vs -0.2% ex Transport).  We think USDCAD’s fortunes will dissipate further with another move below the 1.3070 level.

USDCAD DAILY

USDCAD HOURLY

DEC CRUDE OIL DAILY

EURUSD

The European Central Bank has just released its press release following its latest monetary policy meeting and it looks like the exact same communication when compared to their big announcement from last month.  The ECB left the deposit rate the same at -0.50%, reiterated that interest rates will remain at their present level until the ECB reaches its 2% inflation target, and that the new 20blnEUR/month in asset purchases will begin Nov 1st for “as long as necessary”.  Full press release here.  Live link the press conference here.

Euro/dollar is not reacting to the ECB press release so far (because none of this is new information), but it’s trading well off its session highs after Germany reported another set of weak flash PMIs for the month of October.  While the Manufacturing PMI dipped slightly to its 10th straight month of contraction (41.9 vs 42.0 exp), it appears the slowdown is now spreading further to the German services sector (51.2 vs 52.0 was worse than expected + was a new 6-year low).

EURUSD DAILY

EURUSD HOURLY

DEC GOLD DAILY

GBPUSD

Sterling has been following EURUSD so far today as the Brexit headlines fall to the wayside for a bit.  The EU has not yet confirmed the UK’s request for a Brexit extension to January 2020 but reports over the last 24hrs suggest this will likely be discussed and granted by the end of the week.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Aussie dipped slightly below chart support in the 0.6830s after EURUSD took a hit on the weak German flash PMI data, but it has since recovered back over this level as EURUSD goes bid into the ECB press conference.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Dollar/yen and US 10yr yields saw a bit of volatility around the release of this morning’s flash PMI data out of Germany for October, but both markets are now moving lower following the weaker than expected US Durable Goods figures that were just reported for September.  The NYFed made headlines again late yesterday by increasing the size of its overnight and term repo operations to $120bln and $45bln respectively…two temporary open market operations that continue day in and week out to inject hundreds of billions of dollars in cash into the US banking system.  This increase in the size of repo operations followed another NYFed permanent open market operation yesterday to purchase T-bills, which was this time oversubscribed by 5.9x!  Why do the banks continue to pull back from the funding markets?  What do they know that we do don’t?  What is Jerome Powell not telling us?  Perhaps he doesn’t even know.  What is clear is that this now constant and oversubscribed demand for banking liquidity appears to be getting worse.

USDJPY DAILY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

Charts: Reuters Eikon

About the Author

Erik Bregar - Director, Head of FX Strategy

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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