Forex traders apparently sat on their hands while waiting for the ECB’s monetary policy announcement, so trading conditions were rather tight for the most part.
However, the euro got swamped by sellers later. You see, the ECB announced that it plans to extend its QE program by nine months and at a tapered pace of €30B. But at the same time, the ECB announced that it maintained its easing bias on its QE program and is even ready to extend it “beyond, if necessary.”
- German GFK consumer climate: 10.7 vs. 10.8 expected, 10.8 previous
- Spanish jobless rate: 16.4% vs. 16.6% expected, 17.2% previous
- Euro Zone private loans y/y: 2.7% vs. 2.8% expected, 2.7% previous
- CBI’s U.K. realized sales: -36 vs. 14 expected, 42 previous
- ECB maintained refinancing rate at 0.00%
- Marginal lending rate maintained at at 0.25%
- Likewise, deposit rate maintained at -0.40%
- QE extension until December 2017 at €60B per month affirmed
- As expected, ECB announced another QE extension that will run from January 2018 to September 2018 at €30B per month
- ECB did not remove easing bias on QE program
- ECB presser coming up; watch it live here
ECB monetary policy decision
As expected, the ECB announced in its official press statement that it decided to keep its current monetary policy.
As such, the refinancing rate is still at 0.00%, the marginal lending rate is steady at at 0.25%, and the deposit rate is unchanged at -0.40%.
Also as expected, the ECB maintained its forward guidance on interest rates, which is that interest rates aren’t budging anytime soon when it said the following:
“The Governing Council continues to expect the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.”
As for the ECB’s QE program, the ECB affirmed that asset purchases will continue at a monthly pace of €60 billion “until the end of December 2017.”
However, the ECB also announce some changes, namely the following:
“From January 2018 the net asset purchases are intended to continue at a monthly pace of €30 billion until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.”
If you were able to read up on Forex Gump’s preview for the ECB statement, then that announcement probably didn’t surprise you.
After all, Forex Gump did point out that economists surveyed by Bloomberg, as well as unnamed ECB officials quoted by Bloomberg, were looking at a nine-month extension starting next year, but at a tapered pace of €30 billion per month. And that’s exactly what we got.
Unfortunately for euro bulls, however, the ECB maintained its easing bias on its QE program when it repeated its forward guidance that:
“f the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the APP in terms of size and/or duration.”
Anyhow, market players are now waiting on what ECB Overlord Draghi has to say, so do keep an eye on the euro.
By the way, you can watch the ECB presser by clicking here, if you’re interested.
Appetite for risk ahead of ECB presser
The major European equity indices started the trading day on a weak footing.
However, they quickly regained some poise and began clawing thier way higher ahead of the ECB statement. No clear reason why, though, since earnings reports that came out during the morning London session were mixed. But it is possible that some market players were expecting the ECB to try and sound dovish.
And when the ECB announced that it would be unwinding some of its loose monetary while maintaining an easing bias, the ECB’s cautious and accommodative tone caused the major European equity indices to jump even higher.
- The pan-European FTSEurofirst 300 was up by 0.35% before the ECB statement but surged by 0.70% to 1,532.62 after the ECB statement
- Germany’s DAX was up by 0.34% before the ECB statement but surged by 0.56% to 13,026.50 after the ECB statement.
- The blue-chip Euro Stoxx 50 was up by 0.48% before the ECB statement but surged by 0.80% to 3,617.00 after the ECB statement.
The risk-on vibes also gave U.S. equity futures a lift.
- S&P 500 futures were up by 0.14% to 2,562.00
- Nasdaq futures were up by 0.17% to 6,074.38
Global bond yields fall
Despite signs of risk-taking in the European equities market, global bond yields were bleeding out, likely because of uncertainty ahead of the ECB statement since bond yields did ease a bit after the ECB statement.
- German 10-year bond yield down by 3.53% to 0.465%
- French 10-year bond yield down by 0.74% to 0.877%
- U.K. 10-year bond yield down by 0.20% to 1.405%
- U.S. 10-year bond yield down by 1.17% to 2.415%
- Canadian 10-year bond yield down by 1.16% to 2.024%
Major Market Mover(s):
The euro was already feeling some bearish pressure ahead of the ECB statement, likely because of profit-taking by euro bulls who rode the broad-based euro rally this week.
However, the euro really felt the pain when the ECB revealed that it was keeping its easing bias on its QE program, despite announcing that it plans to reduce its monthly asset purchases next year.
Not a very surprising reaction, I suppose. After all, Forex Gump did warn about this scenario in his preview for the ECB statement.
By the way ECB Overlord Draghi will be giving a presser in a while. And Draghi’s words will either kick the euro even lower or give the euro support (or be a dud). You can watch his presser live here.
EUR/USD was down by 53 pips (-0.46%) to 1.1768, EUR/JPY was down by 49 pips (-0.37%) to 133.86, EUR/AUD was down by 86 pips (-0.56%) to 1.5258
The higher-yielding Aussie was apparently taking directional cues from risk sentiment since it slid broadly lower at the start of the session when risk aversion prevailed, only to bounce higher against all its peers when appetite for risk returned later.
AUD/USD was up by 8 pips (+0.10%) to 0.7712, AUD/CHF was up by 39 pips (+0.52%) to 0.7659, AUD/NZD was up by 36 pips (+0.32%) to 1.1227
Watch Out For:
- 12:30 pm GMT: ECB press conference; watch it live here
- 12:30 pm GMT: U.S. initial jobless claims (235K expected, 222K previous)
- 12:30 pm GMT: U.S. wholesale inventories (0.4% expected, 0.9% previous)
- 12:30 pm GMT: Advanced U.S. goods trade balance (-$64.0B expected, -$62.9B previous)
- 2:00 pm GMT: U.S. pending home sales (0.4% expected, -2.6% previous)
- 2:30 pm GMT: Minneapolis Fed President Neel Kashkari has a speech