· The dollar rose to a six-week high against the safe-haven yen on Thursday after an exchange of olive branches between Washington and Beijing on trade stoked investors’ appetite for risk.
The improved sentiment comes in an otherwise cautious week in foreign exchange, as investors await a key European Central Bank meeting later on Thursday, at which policymakers are expected to ease policy to support flagging growth.
The yen dropped 0.5% against a rising Australian dollar and hit 108.16 against the greenback, its weakest since Aug. 1. The Aussie hit a six-week high and the Chinese yuan rose 0.4% to a three-week high of 7.0855 against the dollar.
Outside of Asia, expectations for ECB easing this week have weighed on the euro. The single currency has shed 3.5% since June and fell to a one-week low of $1.0983 overnight. It was steady at $1.1013 by mid-session in Asia.
The ECB is almost certain to cut rates, promise to keep rates low for longer and provide banks relief from the side effects of negative rates. However, new asset purchases, priced in by markets, are not a done deal with some conservative policymakers opposing the move.
“Market reaction will likely hinge on the confirmation of a rate cut,” said David de Garis, a director of economics and markets at National Australia Bank in London.
· EUR/USD faces fierce resistance and has room to fall ahead of the ECB
EUR/USD is trading around 1.10 as tension mounts ahead of the all-important decision of the European Central Bank. Will Draghi drag the euro down or disappoint high expectations and send it higher? The world's most popular currency pair is poorly-positioned ahead of the event.
The Technical Confluences Indicator is showing that EUR/USD is trading below a dense cluster of technical levels between 1.1019 to 1.1030. The area includes the Simple Moving Average 10-4h, the Fibonacci 61.8% one-day, the Fibonacci 23.6% one-month, the Bollinger Band 1h-Upper, Fibonacci 38.2% one-week, the BB 15min-Upper, and the SMA 100-15m, and more.
Further up, the next hurdle awaits at 1.1070, which is the convergence of the BB 4h-Upper and the Fibonacci 38.2% one-month.
Next, 1.1105 is the next cap, where the Fibonacci 161.8% one-day and the Pivot Point one-week Resistance 1 meet the price.
Looking down, weak support awaits at 1.0990, which is the confluence of the previous daily low and the Fibonacci 61.8% one-week.
Lower, some support awaits at 1.0962, which is the previous monthly low.
Even lower, the downside target is 1.0885, which is where the Pivot Point one-month Support 1 hits the price.
· Analysts at TD Securities offer their outlook on the EUR/USD pair, in the face of upcoming European Central Bank (ECB) monetary policy decision due later on Thursday at 1145 GMT.
Key Quotes:
“Expect a 20bps rate cut tiering, EUR 40bn per month of QE and no rate hike projection until mid-2021 at the earliest.
We're more comfortable with the rates view than QE, as QE will likely be a contentious decision.
Our dovish ECB call has us looking for downside risks to EURUSD. We think spot will be more sensitive to a large QE announcement than rate cuts as much of the expected Fed/ECB policy path differential already looks priced.”
· The European Central Bank (ECB) and its outgoing President Mario Draghi are caught in a “Catch 22”: The market is expecting so much stimulus on Thursday that it seems almost impossible to surprise on the upside.
The economy is showing further signs of weakness, the inflation rate is not picking up and the U.S.-China trade war has no real end in sight. So what will the ECB do?
“We still think that Mr Draghi will muster a sufficient majority in the Governing Council to push through a package that will include rate cuts as well as a restart of the asset purchase program,” Dirk Schumacher, an ECB watcher with Natixis, said in a note to clients.
· The U.S. and China have appeared to dial down their trade fight by announcing some concessions on tariffs — but experts warned that it’s not yet time to pop the champagne.
while such de-escalation in tensions between the two countries is welcomed, it’s still difficult to see both sides reaching any “real resolution” anytime soon, said James McCormack, Fitch’s global head of sovereign ratings.
“Things change very quickly, it’s hard to know what motivation there is — to be honest — on the U.S. side. So, I wouldn’t want to read too much into a small concession suggesting that we’re on the road to this being resolved,” he told CNBC’s “Squawk Box” on Thursday.
China, too, may not necessarily be softening its stance on trade with its move to exempt some U.S. goods from additional tariffs, according to Iris Pang, greater China economist at Dutch bank ING.
She said in a Wednesday note that Beijing had, in fact, been considering such a move since May. So, the tariff exemption was aimed more at supporting the Chinese economy, and less of “a gesture of sincerity towards the U.S.” ahead of next month’s trade talks, she explained.
· China urged the United States on Thursday to adopt an approach more conducive to dialogue in response to North Korea’s goodwill in wanting to resume denuclearization talks, and again suggested United Nations sanctions relief be considered for Pyongyang.
· Oil prices rose on Thursday, recouping some of the heavy losses in the previous session, on signs of easing trade tensions between Washington and Beijing and a fall in U.S. crude stockpiles to their lowest in nearly a year.
Brent crude futures LCOc1 rose 23 cents, or 0.4%, to $61.04 a barrel by 0650 GMT. U.S. West Texas Intermediate (WTI) futures CLc1 was up 28 cents, or 0.5%, to $56.03 a barrel.
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