Markets have a bit of an awkward "eye of the storm" feeling to them today as traders continue to digest yesterday's ECB meeting. More to the point, ECB President Mario Draghi emphasized in his press conference that the purchases could be extended further if needed, making this a far more dovish decision than traders had expected.
The euro was back under pressure on Friday after an extension of the European Central Bank's program of money-printing drove its biggest daily loss against the dollar since Britain's vote to leave the European Union in June.
The AUD/NZD currency pair could be about to turn decisively higher. Last night’s Reserve Bank of Australia (RBA) policy statement was as neutral as it could get. More to the point, there were no hints of further interest rate cuts. In contrast, the RBNZ suggested at its last policy statement that more rate cuts could be on the way. This alone makes me think that the AUD/NZD may have bottomed out.
Three weeks ago, we wrote up a post titled "Why 'King Dollar' may take a breather until December" where we analyzed the three main drivers of the greenback's impressive post-election rally: expectations for an infrastructure spending boom under President Trump, a more hawkish path for interest rates from the Federal Reserve, and the rise of populism/nationalism in Europe.
The dollar has pulled back in recent days after its U.S. elections-inspired rally faded as investors made a more sober assessment of the whole political and economic situation there and realised that the currency had gone up too far, too fast. In the U.S. nothing has changed yet and it will be a while before president-elect Donald Trump’s fiscal plans will be put into action.
The EUR/USD currency pair turned its early Sunday losses into a positive close yesterday when the pair moved up close to the 1.0800 area. When the market closes at the highs after such a strong move, it usually means there will be more gains in the days ahead.
Well, no one can say that they didn’t see that coming. After Brexit and the U.S. Presidential elections, stocks rallied hard after an initial wobble. The same, albeit to a lesser degree, has now happened in stocks with the case of the Italian referendum. In the forex markets, the EUR/USD dropped to near the 1.05 handle overnight before bouncing back to climb above 1.07.
Despite crude oil’s massive rally on the back of the OPEC news, the Canadian dollar, which tends to correlate strongly with oil prices, has hardly moved against its major rivals. Indeed, the U.S. dollar/Canadian dollar (USD/CAD) currency pair momentarily turned positive.