Equities Keep Trading North, ECB Delivers New Stimulus Package

Investors Continue to Buy Equities on US-China Optimism

The dollar traded mixed against the other G10 currencies on Thursday and during the Asian morning Friday. It gained against NZD, NOK, CAD and AUD, while it underperformed versus EUR, SEK, CHF, and slightly against GBP. The greenback was found virtually unchanged against JPY.

FTSE 100 — Technical Outlook

From all the major indices, FTSE 100 is gaining the least. When all other major European indices are accelerating higher, the UK one is slightly lagging behind. Nevertheless, we can see that the buyers are still trying to lift the price of it higher. FTSE 100 is currently trading above a short-term tentative upside support line drawn from the low of August 23 rd. Although the index may continue moving a bit higher, we do not exclude a possible correction back down before another leg of buying, hence why we will stay cautiously-bullish for now.

ECB Cuts Rates, Restarts QE, but EUR Rallies

Now let’s pass the ball to yesterday’s main event: the ECB policy decision. The Bank decided to cut its deposit rate by 10bps, to -0.50%, and announced a restart of its QE program from November 1 st, at a monthly pace of EUR 20bn, with the new round of purchases being open-ended. The forward guidance was changed to an open-ended one as well. While previously the Governing Council has noted that interest rates are likely to stay “at their present or lower levels at least through the first half of 2020”, now they noted that they expect rates to stay at present or lower levels until they see inflation robustly converging toward their target.

EUR/USD — Technical Outlook

Yesterday was a very volatile day for the euro pairs, as we saw the common currency initially falling against its major counterparts, but then quickly recovering all of the initial losses and eventually ending the day well in the positive territory. Looking at the EUR/USD chart, we may see a bit more upside, as some buyers, who missed yesterday’s rally could try and jump into the pair today. That said, looking at the technical picture of the 4-hour chart, unless the rate is able to overcome the short-term tentative downside resistance line taken from the high of June 25 th, we will remain a bit sceptical about larger extensions to the upside. This is why we will stay slightly neutral for now.

As for Today’s Events

From the Eurozone, we get the wages and labor cost yoy rates, but no forecast is currently available. In the US, both the headline and core retail sales rates for August are expected to have declined to +0.2% mom and +0.1% mom, from +0.7% and +1.0% respectively. The preliminary UoM consumer sentiment index for September is also coming out and it is anticipated to have risen to 90.9 from 89.8.

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