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Markets Await the European Central Bank's Policy Meeting

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USD

On Thursday, the U.S. dollar recovered from close to a 10-months low. The Greenback declined as markets pared expectations for progress on other parts of the Trump agenda, such as tax reform, that would have given the U.S. economy a support.

Meanwhile, traders have pared interest rate-hike anticipations for the Federal Reserve to less than 50% by the year-end, due to fiscal uncertainty.  Data was stronger than expected, with building permits up from 1.17M to 1.25M and housing starts up from 1.12M to 1.22M. Initial jobless claims and the Philly manufacturing index, which could dip from 27.6 to 23.4, are due next. 

  • The U.S. dollar index, which tracks the Greenback vs. a basket of major currencies, rose to 94.793.

EUR

The single currency settled near 14-months high vs. the Greenback as traders are looking to hear from the European Central Bank about whether it would announce changes to its bond-buying plan in September.  The common is traded at $1.15275, backing off from Tuesday's $1.1583, its highest level since May 2016. The European Central Bank will announce its rate decision at 11:45 GMT, followed by Mario Draghi's news conference at 12:30 GMT.

No actual rate changes are eyed but traders are hoping to hear more hints of tapering from Governor Draghi. He did drop some upbeat remarks during his previous testimonies but policymakers cautioned that markets may have misinterpreted these comments. German PPI and euro zone current account balance is also eyed. 

JPY

The Bank of Japan concludes a two-day meeting Thursday; however, traders expect no change in policy but dovish remarks or jawboning could push the yen lower once more. However, a neutral stance could lead to some gains for the Japanese currency.

 The Greenback settled at ¥111.92 vs. JPY after trading as low as ¥111.82, its lowest levels in around three weeks, negatively affected by a better-than-expected Japan trade data for the month of June. Japan exports in the month of June surged by 9.7% on year compared to the 9.5% forecast and imports rose as much as 15.5% compared to the 14.6% projected. Earlier today, the trade balance was printed and a lower surplus of 0.08T JPY was seen but the investors will pay close attention to the BoJ rate statement.

GBP

The pound is in a weak spot due to Brexit concerns and weak CPI data, which has lowered BOE rate hike expectations. The Sterling pound declined to $1.302 vs. the Greenback on a slow news day in the UK and the U.S.

Meanwhile, Cable edged lower as UK businesses report fresh lows in confidence because of the general election and persistent worries about the future. There have been no reports out of the UK economy yesterday while today, Sterling is awaiting the UK retail sales data for June. A 0.4% rebound over the previous 1.2% decline is eyed but another drop could remind traders that consumer spending is reeling from higher price levels.  The pound could hit $1.31 if the retail sales figure beats expectations and decline further if the retail sales miss estimates.

Gold

Gold prices fell yesterday as the Greenback took a break after a 10-months low, and this is despite the fading probabilities for the U.S. monetary tightening this year and its political uncertainties that continue to pressure the U.S. Dollar.

The yellow metal declined as much as 0.2% to $1,240.11 at 07: 02 GMT, after hitting its highest since June 30 at $1,244.56. Technically, the precious metal could rise to $1,250, as it has cleared resistance at $1,238.

Oil

Oil prices edged higher yesterday after a U.S. report showed a bigger weekly draw than forecasted in U.S. crude oil and gasoline stocks along with a bigger-than-expected drop in distillate inventories. U.S. West Texas Intermediate crude futures rose were up 1.6% or 72 cents, the best closing price since 6th June. While Brent crude futures $49.68 by 18:35 GMT.

The most important economic events:

  • JPY BOJ Kuroda speaks at press conference after MPM: (GMT 6:30) – Important
  • EUR European Central Bank Rate Decision (JUL 20): (GMT 11:45) – Important- Forecast (0.00%) – Previous (0.00%).
  • EUR ECB Marginal Lending Facility (JUL 20): (GMT 11:45) – Important- Forecast (0.25%) – Previous (0.25%).
  • EUR ECB Deposit Facility Rate (JUL 20): (GMT 11:45) – Important- Forecast (-0.40%) – Previous (-0.40%).
  • EUR ECB Asset Purchase Target (JUL): (GMT 11:45) – Important- Forecast (-EU60b) – Previous (-EU60b).
  • EUR ECB President Mario Draghi Holds Press Conference: (GMT 13:30) – Important

Disclaimer
The prices and news mentioned in this outlook are absolutely no guarantee of future market performance and do not represent the view of ICM Capital Limited. Financial markets can move in either direction causing profits to be made or complete losses to be incurred by the trader. Each trader must decide for themselves what their risk appetite is and ensure that correct risk management procedures are in place before placing any trades.

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