European stock indices stormed higher yesterday and have extended their gains this morning ahead of the European Central Bank rate decision and press conference today. The main focus will be on whether or not the ECB would announce a plan to taper its quantitative easing program, and any comments about the euro, which has climbed to multi-year highs against a number of foreign currencies.
In July, the European Central Bank President Mario Draghi said that the Governing Council would discuss the future of its €60 billion monthly purchases program in the autumn. Technically, autumn in the Northern Hemisphere will not start until Friday, Sept. 22, so there is a possibility that the topic of quantitative easing tapering may not be discussed at this week’s meeting.
The dollar has fallen across the board today. After Friday’s disappointing U.S. jobs report, today saw factory orders come in at -3.3% month-over-month for July. Although expected, this was yet another piece of economic data pointing to weakness in the US economy, which could deteriorate further due to the economic damage Hurricane Harvey has caused.
The official U.S. monthly non-farm payrolls report will be released on Friday, Sept. 1. Due to the fact that some of the key leading indicators will be released after the NFP, it is even more difficult to predict this month's headline figure with any reasonable degree of confidence.
The euro’s minor recovery on the back of stronger-than-expected Eurozone inflation data this morning last only a few moments. After climbing to above 1.19 on news of an unexpectedly sharp 1.5% year-over-year rise in August CPI, the euro/U.S. dollar currency pair then tumbled 50 pips after Reuters reported, citing an unnamed source, that the European Central Bank is growing worried about the recent strength of the euro and that this may increase the chance of a delay or call for a more gradual exit from the asset purchases program.
From being one of the strongest to one of the weakest currencies in space of two days. That’s right, the euro is actually falling for once. The single currency is partly lower because of the drop in the euro/U.S. dollar (EUR/USD) currency pair exchange rate as the dollar firms up across the board thanks to short covering and positive surprise in U.S. data.
Following big falls in some risk-sensitive assets on the back of North Korea tensions, a number of global stock indices and dollar currency pairs ended the session with impressive reversal-looking technical patterns as the dip buyers evidently stepped in to take advantage of the lower prices (see the technical outlook section below).
The U.S. dollar’s selling had paused ahead of Jackson Hole Symposium last week, but then it accelerated again. That was until earlier this morning as since then the dollar has made a small comeback against a number of her rivals due above all to profit-taking. The greenback fell sharply on Friday after Janet Yellen, the Federal Reserve Chairwoman, remained tight-lipped about the future path of U.S. monetary policy.