First of all my apologies for the lack of commentary over the past 48 hours. One thing that seems almost guaranteed at this time of year is when kids go back to school, they bring home some sort of sickness! Anyway, on the mend and back to commentary duties.
As Thursday begins, the market receives welcome news that the US has suspended increasing tariffs on $250 bio of Chinese goods as a gesture of goodwill.
The initial market reaction is a rally in equities as well USDJPY, hitting a high of 108.16. However, as the European day got going, USDJPY drifted back to 107.80 as EURUSD rallied to 1.1030 ahead of the ECB rate decision.
Elsewhere, the FX market was quiet with GBP consolidating around 1.2330 and AUD at 0.6880.
Crypto markets were generally higher to start the day, with BTC recovering from the previous day’s low of $9,890 to trade at $10,130 at the US open.
So all eyes on the ECB to start the US day. What would they do and potentially more importantly, what would they say? As expected, they cut the deposit rate by 0.1% and also launched a new bond-buying programme (QE).
Initially, EURUSD jumps to 1.1064 but then dropped quickly to 1.0955. US Treasury Secretary Mnuchin announces the Treasury is seriously considering issuing a 50-year bond next year.
The 10Y yield slips to 1.68%, XAUSD rallies to 1517 and equity futures start to slip. EURJPY is now almost 130 points from its highs, slipping just shy of 118.00.
The ECB news conference begins, and Mario Draghi unsurprisingly alludes to increased downside risks. EURUSD drops to1.0927, EURJPY to 117.55. Gold touches $1,524.
By now GBP has slipped below 1.2300, AUD has fallen to 0.6870 and USDCAD is up to 1.3210. President Trump can’t resist an early Tweet, claiming the ECB has successfully depreciated the EURO against the USD, while the US ‘sits’. A veiled threat maybe?
All of a sudden, we bounce with EURUSD back to 1.1065 and EURJPY to 119.00. GBPUSD is back to 1.2340. Madness! US stocks had been poised to open moderately higher but are soon back to flat as EUR rallies.
The US 10Y yield is back to 1.72% and XAU down to $1,515. But we are not done yet. Next a report claiming the Trump administration is weighing an interim trade deal with China.
USDJPY up to 108.00 again. EURJPY up to 119.50. The DJ is up 140 points. Then a senior White House official denies the interim trade deal USDJPY back to 108.70 and the DJ back to flat. EURUSD drops back to 1.1030. Are we done? No! Back come stocks, DJ up 120 and EUR heads to a new high on the day of 1.1087.
XAU in the meantime has dropped to $1,498 and USDJPY is back to 108. 10. The volatility finally subsides as the NY afternoon turns to a slumber. Equities hold on to some gains, but the DJ ends up closing up just 45 points. What a day!
Obviously, EUR was the big mover today. Looking at an hourly chart we can get a clear picture of the day’s volatility and most interestingly the level that held after the post ECB sell-off.
We now have a very well established double bottom in place at 1.0927! Where from here is very unclear and is likely to be data-dependent. But for now, 1.0927 is your support and 1.1162 your resistance. And in the middle, a lot of noise!