The euro emerged the winner from the closely watched ECB meeting, but only until equities losses bolstered the safe-haven dollar and yen, while sterling was slammed again by the re-emergence of fears that the UK was headed for a chaotic Brexit.
The ECB disappointed dovish expectations that it would nL8N2G717H express concerns about euro gains fueling disinflation to signal increased easing at this point nECBSEPT1.
That together with EU-UK tensions over Britain's plan to break their divorce treaty nL8N2G713X sent EUR/GBP soaring 2% toward March’s pandemic peak.
EUR/USD rose 1% in reaction to the ECB and somewhat disappointing U.S. jobless claims data nL1N2G61R4, but it retreated from the day's 1.1917 peak on EBS to stand nearly flat by late U.S. trade as stocks fell.
Come what may with the euro, many analysts expect the ECB to expand its pandemic emergency purchase programme program in December, and President Christine Lagarde did say policymakers would closely monitor exchange rates.
EUR/USD’s positive correlation with stocks, its near-historic spec net long positioning and last week’s bearish rejection by the downtrend line from 2011 and 2014 highs and failed breakout above 1.20 are obstacles for the euro.
Sterling’s slide from the Sept.
1 peak extended to 5.2% at the day’s low that broke beneath the uptrend line from March and the 50% Fibo of the June-September advance at 1.2868/67.
It has fallen into the daily cloud, the base of which joins the 61.8% Fibo at 1.2721-22, with the 200-day moving average at 1.2739 an interim prop.
USD/JPY was basically flat and in the middle of its 105-107 range of the last several weeks.
The yen roughly duplicated the dollar’s performance against the other majors, with EUR/JPY’s rebound off key support on Wednesday falling well short of the trend high, with double-top risk if the ECB events can’t convince the crowded spec long contingent to press on.
The frontrunner to become Japan's next prime minister, Yoshihide Suga, said he will call for another sales tax hike nT9N28E0AQ, despite last year’s rise triggering recession.
That and his broadside against the country’s major mobile carriers nT9N28E0AR could create some unexpected volatility.
Oil and industrial metals fell as the dollar rebounded, stocks fell and Treasury and Bund yields initially rallied on disappointment that the ECB was not more dovish and in a pre-Treasury auction concession.
Friday brings U.S. CPI for August, with the core year-over-year rate seen steady at 1.6% and the overall rate at 1.2% versus 1% previously.
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