ECB: Hawks vs Doves
By Arnaud Masset
At 11.45 London time the European Central Bank will announce its decision on interest rates and talk about it 45 minutes later at a media conference. Expectations are that rates will not change, and that President Mario Draghi will announce a reduction of the bond buying programme – the question is when and by how much. Markets are reckoning a halving of monthly purchases to €20 billion down from €40bn, but also an extension of the programme by at least six months (June 2018) or even nine months (September 2018). Draghi will try to announce a hawkish move without triggering a sell-off in the bond market and a Euro rally.
After extending gains yesterday, EUR/USD is trading sideways on Thursday morning at around 1.1825. EUR/CHF printed a multi-year high yesterday at 1.1705. In the short-term, the increase in the price EUR/USD call options compared to put options suggests that the market is positioned for further EUR/USD strength. However, in the longer term, because puts are more expensive than calls, investors are rather bearish on the medium-term outlook for EUR/USD.
USD still bullish
By Peter Rosenstreich
Most signs are upward for the greenback. Earnings for the July-September quarter have beat expectations at 70% of the S&P 500 companies. Economic data have surprised significantly to the upside. Tax reform seem to be mostly on track. President Trump told Fox News he is considering the reappointment of Janet Yellen as Chair of the US Federal Reserve. He also seems to be backing off on threats to exit the North American Free Trade Agreement (NAFTA) with Canada and Mexico. US 10-year treasury yield rose to 2.43%, its highest since March.
Still, if the Fed turns dovish or if tax reform stalls, the dollar could stutter. And then there is today’s Monetary Policy Meeting of the European Central Bank – dollar investors should wait for that to play out before buying.