Equities Slide on Fed Comments, BoC Stands Pat, ECB Takes its Turn

Fed Member Still See Tapering by the End of the Year

The US dollar traded higher against all but one of the other major currencies on Wednesday and during the Asian session Thursday. It gained the most versus CAD, AUD, and NZD, in that order, while it lost some ground only versus JPY.

DJIA — Technical Outlook

The Dow Jones Industrial Average cash index continued trading lower yesterday, falling below the upside support line drawn from the low of June 21st. In our view, this may have dismissed the bullish case for a while, but in order to start examining a short-term reversal, we would like to see a dip below 34565.

BoC Keeps the Door for October Tapering Open

Yesterday, we also had a BoC monetary policy decision. As was widely expected, this Bank kept interest rates at a record low of +0.25% and maintained its current QE program. In the statement, it was noted that they expect growth to strengthen in the second half, though a fourth coronavirus wave and supply bottlenecks could weigh on the recovery. What’s more, they maintained the guidance that the economic slack would be absorbed sometime in H2, 2022, which means this is when they expect to start raising interest rates.

Will the ECB Taper its PEPP Purchases Today?

Today, as we already noted, it is the turn of the ECB to decide on monetary policy. At its latest gathering, the ECB kept all of its settings untouched, but changed its forward guidance, saying that it will keep interest rates at present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon, which may also imply a period during which inflation moderately overshoots that objective. In our view, this translates into willingness to hold rates low for much longer than the previous guidance suggested.

EUR/CAD — Technical Outlook

EUR/CAD has been in a rally mode this week, after hitting support at the 1.4857 level and the upside support line drawn from the low of August 12th. Yesterday, the rate hit resistance at 1.5062, corrected lower, but found support at 1.4960 and rebounded again. Overall, the pair continues to trade above the aforementioned upside support line and thus, we will consider the short-term outlook to be positive.

As for the Rest of Today’s Events

The only other events worth mentioning, besides the ECB decision, are the US initial jobless claims for last week, which are forecast to have slid to 335k from 340k, and the EIA (Energy Information Administration) report on crude oil inventories for last week, which is expected to reveal a 4.612mn barrels slide, following a 7.169mn tumble the week before. That said, bearing in mind that the API (American Petroleum Institute) revealed a 2.882mn barrels slide, we would consider the risks of the EIA number as tilted to the upside.

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