Forex Signals US Session Brief, Sep 12 – ECB Eases Again, the Euro Tumbles
Skerdian Meta • 4 min read
Today was the day everyone has been waiting for, since late spring. The Eurozone economy has weakened considerably this year, with inflation falling below 1.0% and the manufacturing sector in contraction in major Eurozone countries. Many other major central banks have been cutting interest rates in the last few months as global economy deteriorates, so traders were anticipating something concrete today. Perhaps a rate cut, or restarting the QE, or both. Or perhaps announcing a fixed date for any of these options.
The Euro had started to turn bearish yesterday in anticipation of this meeting, as I highlighted in the forex brief. Although, this morning the Euro was retracing higher. But, the ECB cut deposit rates by 10 bps to -0.50% from -0.40% previously and they also announced a date for the restart of the QE (quantitative easing) programme. That will start on November 1 and will be a €20 billion per month bond purchase programme. These measures still fall short of market expectations, but the Euro has made a bearish leg lower after the ECB actions today. The sentiment has also taken a hit with safe havens on the march now.
The European Session
- German Final CPI – Inflation has weakened considerably in Europe this year, although it has still been increasing in Germany. But, the initial reading for August showed that inflation turned negative last month and today’s final reading came unchanged at -0.2%.
- Eurozone Industrial Production – The industrial production has been mainly negative in Europe this year. Production has declined in almost every month, apart from January and May. The report released last month showed a big decline in industrial production of 1.6% for June, which was revised lower to -1.6% today. For August, today’s report was expected to show another decline, this time of 0.1%. But the decline was larger as today’s number came at -0.4%.
- Oil Talk – Today is the meeting of the Organization of Petroleum Exporting Countries (OPEC) and Joint Ministerial Monitoring Committee (JMMC). IEA said that OPEC+ faces daunting challenges in managing the market in 2020. Demand for OPEC+ crude will be 1.4 mil bpd below August production in H1 2020. The halt in stockpiles is seen to be temporary. There could be a significant increase in stockpiles in 2020. OPEC+ producers will see surging non-OPEC oil production next year. OPEC+ reportedly said to be discussing improving output cut compliance. Oman’s Oil minister also chipped in saying that there were no discussions on new deeper oil cuts during today’s meeting.
- BoJo is Still Ready for No-Deal Brexit – UK prime minister Boris Johnson said earlier today that we will be ready for no-deal Brexit on 31 October. He’s still hopeful of getting a Brexit deal. The Parliament will have time to discuss a deal after European Council summit. If we can’t get a deal at the end of next month, we will be ready to leave. A no-deal Brexit planning paper is the worst-case scenario, UK is making sensible preparations for such a circumstance. He also denied lying to the Queen over parliament prorogation
- ECB Rate Decision and Statement – The ECB meeting took place a while ago. They announced a 10 bps cut in deposit rates. Now deposit rates stand at -0.50%. Main refinancing rate remains unchanged at 0.00%, as does marginal lending facility at 0.25%. ECB announces rate tiering system and they are to introduce two-tier system for negative rate policy. They reintroduced another QE programme, €20 billion per month from 1 November. The ECB is to buy bonds as long as needed. They will stop purchases shortly before raising rates, whenever that might be. Rates are to remain at present or lower levels until inflation outlook robustly converges to central bank’s aim. It is going to be a long time until inflation kicks in again. The decision is not as strong as markets might have expected, but Euro traders are going short now on the QE programme, which is not as strong as expected either.
The US Session
- US CPI Inflation – The inflation report from the US was released a while ago. Headline CPI inflation cools off to 0.1% for August as expected in the US. Although, core CPI remained unchanged, showing a 0.3% growth in August, which is the third month inflation grows at such pace. Headline CPI YoY ticked lower to 1.7% against 1.8% expected. But, core CPI which excludes food and energy move higher to 2.4% against 2.3% expected, two points up from 2.2% prior.
- US Employment and Earnings Report – The unemployment claims have been in the 210k-220k region in the last several weeks. They were expected to remain in that range today and show 215k jobless claims. But claims beat expectations, falling to 204k. Average weekly earnings increase to 1.2% YoY from 0.9% prior, real average hourly earnings tick higher to 1.5% from 1.4% prior.
- ECB Press Conference – After the meeting, the ECB held the usual press conference. The opening statement from Mario Draghi was that “incoming information reflects more prominent downside risks”. Today’s decisions were taken in response to the shortfall in inflation. We stand ready to adjust all instruments as appropriate. The Governing Council reiterated the need for a highly accommodative stance of monetary policy for a prolonged period of time. Incoming information continues to point to moderate but positive growth, robust employment underpins economic resilience.
- Trump Tweeting on China – The US President Donald Trump is up and tweeting on China already. Here is the tweet: “It is expected that China will be buying large amounts of our agricultural products”! Well, let’s see if China does; if they do, the chances of a trade deal will increase considerably.
Trades in Sight
- The trend is still bullish on the H1 chart
- The pullback lower is complete
- The 50 SMA provided support
- The previous candlestick points higher
The 50 SMA is providing support on the H1 chart
USD/JPY has turned quite bullish in the last week or so, as the sentiment in financial markets improves. During this time, the 20 SMA (grey) and the 50 SMA (yellow) have been providing support on pullbacks lower. Today we saw a decent pullback. The 20 SMA gave way easily today, but the 50 SMA seems to be doing its job correctly now. The price pierced it earlier, but it has returned up, so it doesn’t count as a break. The previous H1 candlestick closed as a hammer, which is a bullish reversing signal, so the reversal higher might come soon.
The Euro lost around 100 pips earlier today after the ECB meeting and press conference. But it has reversed up now and has reclaimed almost all the losses. The GBP is higher as well, so I suppose this move comes after Charles Grant, the director of the Centre for European Reform, wrote about higher chances of a deal after meeting with EU and UK officials.