Comentário Diário | 13/09/2019
ECB cuts deposit rate and reintroduces QE program
ECB’s interest rate decision was released yesterday and as the market widely expected the bank cut the deposit rate by 10 basis points, lowering it to -0.5%. Besides the cutting of the rate, it proceeded with the reintroduction of its QE program of 20 billion EUR per month, starting November 1st. However, the bank may have disappointed the market’s dovish expectations somewhat as the amount decided was less than what was widely rumoured in the market’s grapevine. Also, the bank stated that the program is to remain as long as needed and Mario Draghi in his press conference later on stated that the bank has ample of headroom to preserve it. Also, the bank stated that it will introduce a two-tier system for a negative rate policy, to ease banks somewhat, while modalities to its TLTRO program are to be changed. In its forward guidance, the bank stated that it sees rates at present or lower levels, until the inflation outlook robustly converges to central bank’s aim (near but below +2.00% yoy), while also stated that inflation is not expected to overshoot +1.5% yoy by 2021. If the two are to be combined, then an investor would reasonably expect the bank to maintain current or lower level of rates for the next two years. The market may have gotten a little bit of everything, yet the main blow for the EUR was missing and ECB president made sure for the common currency to regain its losses during his speech. We expect the EUR to remain data depended in the next few days, yet an uncertainty seems to have been lifted from the single currency. Despite the initial shock that caused EUR/USD to drop, EUR regained losses made and characteristically the pair ended trading above previous week’s levels, breaking the 1.1050 (S1) resistance line, now turned to support. We could see the pair stabilising today, yet bullish tendencies could eb in the works as the financial releases could weaken the USD side today. Should the bears be in charge of the pair’s price action, we could see it breaking the 1.1050 (S1) support line and aim for the 1.1000 (S2) support level. Should the bulls take over, we could see EUR/USD breaking the 1.1105 (R1) resistance line and aim for the 1.1160 (R2) level.
Trade pressures seem to ease, yet central bank rollercoaster looms
Despite the Yen seemingly gaining some ground yesterday against the USD, trade tension easing once again put it under selling pressure. It would be indicative of the situation that the US president stated yesterday, that he would not rule out the possibility of an interim deal. There seems to still be confidence about some easing of the US-Sino trade tensions, but the overall effect on the market seems to be weakening. After the ECB interest rate decision is out, the markets seem to be focusing on the Fed meeting next week as well as SNB and BoJ. Cautiousness seems to have started to settle in, as all bank’s seem to be leaning to the dovish side, to a greater or lesser degree. JPY may prove to be volatile, as conflicting forces could affect it. USD/JPY continued to rise yesterday aiming the 108.35 (R1) resistance line. For our bullish outlook to change for the pair, we would require a clear breaking of the upward trendline incepted since the 4th of September. Should the pair find fresh buying orders along its path, we could see the pair breaking the 108.35 (R1) resistance line and aim for the 108.90 (R2) resistance hurdle. Should the pair come under the selling interest of the market, we could see the pair breaking the prementioned upward trendline, the 107.75 (S1) support line and aim for the 107.20 (S2) support barrier.
Other economic highlights today and early tomorrow
In today’s European session, we get Eurozone’s trade balance figure, while in the American session, we get the US retail sales for August and the Michigan Consumer sentiment for September. During Monday’s Asian session we get China’s industrial production growth rate for August.
• Support: 107.75 (S1), 107.20 (S2), 106.60 (S3)
•Resistance: 108.35 (R1), 108.90 (R2), 109.60 (R3)
• Support: 1.1050 (S1), 1.1000 (S2), 1.0950 (S3)
•Resistance: 1.1105 (R1), 1.1160 (R2), 1.1215 (R3)