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Equities lose ground ahead of ECB meeting

- Mario Draghi will likely announce a QE extension as a signal that the ECB stands ready to ease and maintain its current monetary policy as long as necessary - despite the fact that QE has not yet being efficient in driving growth and inflation higher

- Eurozone growth forecasts should be lowered to 1.5% from 1.7%. Draghi has not made any statements in seven weeks and so the financial markets will be very eagerly awaiting a reassessment of the macroeconomic conditions.

- Rates should be maintained at current levels as there are concerns that negative interest rates could be detrimental to the banking sector and put banking profits at risk, especially in the event of rates going even deeper in negative territory.

- EUR crosses: Traders will be reluctant to take risky positions before Mario Draghi’s speech and the release of fresh growth and inflation projections

- USD remains unable to take off amid fading rate hike expectation. The euro edged slightly higher against the Japanese yen, with EUR/JPY trading at around 114.35

- Despite better than expected Japanese quarterly growth figures, we don’t think it changes anything for the BoJ as inflation remains anaemic and the growth outlook weak

- Commodity currencies may surge further as the chase for yields continues

 

EUR crosses traded mostly sideways ahead of today’s ECB meeting. Traders were reluctant to take risky positions before Mario Draghi’s speech and the release of fresh growth and inflation projections. We do not expect the ECB to rush to increase its quantitative program. However, the central bank should extend its program beyond March 2017 to around September, giving it more time to better assess the consequences of the Brexit vote, especially now that the UK seems to have done fine so far. EUR/USD treaded water between 1.1235 and 1.1258 in Tokyo. On the medium-term, the single currency continues to trade within its uptrend channel as the US dollar remains unable to take off amid fading rate hike expectations. The euro edged slightly higher against the Japanese yen, with EUR/JPY trading at around 114.35.

 

Yann Quelenn, market analyst: “What to expect from today’s ECB meeting: The European Central Bank is largely all-in. Mario Draghi will likely announce a QE extension as a signal that the ECB stand ready to ease and maintain its current monetary policy as long as necessary. The reality is that QE has not yet been efficient in being able to drive growth and inflation higher. However, the central bank is now too deep into the program to turn back.

 

The growth and inflation forecasts will likely be lowered. Also, this year’s inflation target should be readjusted. Eurozone inflation is very low, coming in at 0.2% in August and growth forecasts should also be lowered to 1.5% from 1.7%. Draghi has not made any statements in seven weeks and so the financial markets will be very eagerly awaiting a reassessment of the macroeconomic conditions.

 

At the very least, rates will be maintained at current levels. Some policymakers have recently expressed the concern that negative interest rates could be detrimental to the banking sector and put banking profits at risk, especially in the event of rates going even deeper in negative territory. For the time being, we believe that rates will likely remain on hold.” ---

 

During the Asian session, investors stayed away from equities but pushed the yellow slightly higher. With the exception of Hong Kong’s Hang Seng, Asian regional markets were mostly trending in negative territory. Gold rose 0.15% to $2,186.20 and was unable to escape its long-term downward channel to the upside. Japanese shares were down 0.32% as the yen consolidated yesterday’s gains. In spite of better-than-expected GDP figure for the second quarter, USD/JPY traded range-bound in Tokyo and moved between 101.41 and 101.92. The Japanese economy grew 0.2%q/q in the June quarter, beating median forecasts and first estimates of 0.2%. However, we don’t think that this changes anything for the BoJ as inflation remains anemic and the growth outlook weak.

 

Commodity currencies surged further as the chase for yields continues. After surging 2.35% since August 31th, AUD/USD rose another 0.45% on Thursday hitting 0.7713 in Sydney. The Norwegian krone found solid buying interest as crude oil prices continued to rally. USD/NOK fell 0.25% to 8.1590, while the Brent crude rose 1.80% to $48.85 a barrel.

 

Today traders will be watching manufacturing production from South Africa; inflation report from Brazil; ECB interest rate decision and press conference; initial jobless claims and crude oil inventories from the US.

Thursday, 08 Sep, 2016 / 9:22

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Source : http://en.swissquote.com/fx/news

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