The EUR/USD currency pair was exposed to extreme levels of volatility on Thursday. The ECB has said that it will extend its QE programme out to December next year. From April to December asset purchases will be EUR 60 bn per month, EUR 20bn less than the current monthly purchases.
The reduction to EUR 60 bn from April 2017 untill the end of the year could spark fears of a taper potentially sabotaging growth and pressuring the ECB to take further actions.
Britain's top share index rose for a third session, as investors snapped up bank and mining stocks. The British FTSE 100 Index was up 1.8 percent to 6,902.23 points at its close, its highest closing level since November. European stocks closed higher in this afternoon. Investors shifted their focus to the European Central Bank's (ECB) upcoming meeting. They expect further monetary stimulus to be announced.
Financials contributed 47 points to the rise, supported by gains in euro zone lenders. Another bad day for italian banks. They continued to rally off of lows hit after the Italian prime minister Matteo Renzi said he would resign after the rejection of his reforms in a referendum.
The Oil prices continue to increase until 51.82 (Crude Oil) and 54.55 (Brent Oil).
On Wednesday in Vienna, the Organization of the Petroleum Exporting Countries (OPEC) reached a deal to cut their oil production by 1.2 million barrels per day in order to raise global prices. Saudi Arabia will take the brunt of this cut. Under the deal, OPEC nations will bring Oil production volume down to 32.5 million barrels per day, with Saudi Arabia, Iraq, UAE, and Kuwait making the biggest cuts.
The U.S. dollar reached its highest level against a basket of major currencies for almost 14 years. Donald Trump's election victory drove debt yields higher on expectations of more fiscal spending, price growth and a faster pace of monetary tightening.
The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.8 percent at 101.690.DXY. The dollar was also helped by yesterday’s data. The U.S. third quarter GDP revised up and November consumer confidence come in stronger than expected.
The Bank of Japan's decision in September to target zero percent yields for longer-dated debt has played into a broader sense. The yen's rally may now be done after a series of failures to break past 100 yen per dollar.
Oil prices continue to track lower in the wake of late reports yesterday. This confirms that OPEC experts did not reach an output deal at their working meeting in Russia before tomorrow’s formal summit meet in Vienna.
Reports in Asia suggest the Saudi’s have offered Iran a freeze at +3.7MBD, below the +3.97MBD requested by Tehran as it recovers from western sanctions.
The financial market is worried about the outcome of the OPEC meeting in Vienna this week. Most of financial analysts expect lack of compliance as usual by OPEC members even if an output cut/freeze cut can be reached.
Algeria and Venezuela seek to reach a deal to output cut, but Saudi Arabia has recently suggested that a rate cut might not be needed because demand should recover next year. Khalid Al-Falih, the Kingdom's oil minister suggested that with oil demand expected to "recover in 2017, then prices will stabilize, and this will happen without an intervention from OPEC". Algeria and Venezuela continue to seek support from Russia. The energy ministers of both countries will meet in Algiers and then travel to Moscow on Monday.
The European Central Bank will decide at its Dec. 8 meeting on the continuation of its stimulus program, President Mario Draghi said on Monday, quashing speculation about a delay in the decision to January. As a consequence, euro fell on Monday at 1.0563
Mario Draghi said in the European Parliament that the bank's leadership "will assess the various options that would allow the governing council to preserve the very substantial degree of monetary accommodation necessary" to raise inflation toward the bank's goal of just under 2 percent.
The council will discuss whether to extend its 1.77 trillion euros ($1.87 trillion) in bond purchases, a form of stimulus that pumps 80 billion euros per month into the economy.
A strong dollar attracted fresh selling pressure around the precious metal. The Gold plunged after the release of stronger-than-expected US durable goods orders. Gold fell below $1190, for the first time since February. orders surpassed the most optimistic estimates and recorded a growth of 4.8% for October. The core durable goods orders (excluding automobile items) recorded a better-than-expected growth of 1.0%.
The Atlanta Federal Reserve is forecasting GDP rising at a 3.6 percent annual rate in the fourth quarter. The economy grew at a 2.9 percent pace in the July-September period. Gold could fall further from here, with analysts having previously highlighted a technical resistance level around $1,170 as a target. The strong economic growth outlook is likely to encourage the Federal Reserve to raise interest rates in December.
Yields are rising in the US as investors leave Fixed Income for assets like Equities.This is a consequence of Trump's indication to implement tax cuts and lift fiscal spending.
According to a survey of the Wall Street Journal, taken after the election, the unemployment rate could fall further (to 4.7% at the end of 2018), real GDP could rise more (to 2.3% by 2018), inflation is seen at 2.4% by 2018 and the 10-year yield is seen at 3%.
The price is very bullish on USD at this momet. For example, a potential target for the USD/JPY currency pair is 110.00 in the next period. If we see a reverse around 110.00, we may consider a counter trend opportunity towards 107.00.
The dollar surged to an 11-month high against the most of the currencies on Monday. China's yuan lost another third of a percent. The yuan fell to its weakest since 2010, before the launch of its offshore market. The japanese yen and the euro both sank by about another full percentage point to multi-month lows. The euro fell to $1.0726, its lowest since the beginning of the year. The dollar index rose 1 percent to 100.04, its highest since December last year.
These moves are because of expectations that Trump's administration would both boost spending and put more restrictions on trade. These steps could put an end to the low inflation which has dominated the past decade.
The 10-year Treasury note yield rose to a 10-month high of 2.3 percent in European trade. "Investors are still struggling to cope with all the implications the new U.S. president may have for the world's economy. The interest rate is expected to increase at the Fed's final policy meeting of the year in mid-December”, said Marius Ghisea, President and CEO of MS Capital Consulting.
The USD/JPY currency pair remains bullish, while the improvement in prospects for global growth is set to deliver JPY weakness.
“The U.S. dollar is strong against the major world currencies, touching its highest level in more than two weeks, hovering just below levels last seen in February. The Japanese yen is weak, underperforming with a 1.2% decline from Wednesday’s close. This currency has fallen at levels last seen ahead of the Bank of Japan disappointment from July”, said Marius Ghisea, President and CEO of MS Capital Consulting.
Despite this strong volatility, a rate hike is possible. This would mark the first rate move by the Fed since December last year.