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by Stephen Casey | December 8, 2016

– ECB Keeps Rate; Extends QE

– Chinese Data Boosts Risk Appetite

– Draghi To Address Anxious Markets


Good morning. Foreign exchange markets are abuzz this morning, awaiting the press conference from ECB Chairman Mario Draghi. The European Central Bank today concluded their last policy meeting, leaving the headline rate at unchanged at 0.0% and announcing a smaller than extension to their asset purchase program. The main event, Mr. Draghi’s press conference, is upcoming though, as investors and traders around the world finally get some specifics into the QE extension, which will only be €60 billion per month compared to the €80 per month done now. The current program is slated to end in March and it appears a new extension until at least December of 2017 will be formally announced. Major currencies slipped into a very tight range over the last few days, which continued on Thursday into the North American open.

Chinese data kicked things off overnight, as the world’s second largest economy announced a trade surplus of $44.6 billion for the month of November. Markets jumped on this result, which was supported by a better than expected imports figure, which rose by 6.7%. Japanese Q3 GDP was announced as having grown 1.3% but unfortunately, this was well below the lofty expectations of 2.2% annualized growth. The yen advanced slightly versus the greenback through Thursday’s overnight session. The EUR/USD steadily rose throughout the European morning session and exploded higher briefly, following the ECB announcement about thirty minutes ago. The single currency has erased those gains though as the market waits for Mr. Draghi to speak and offer more specifics on the extended QE program. Sterling was a bit higher as well but likely taking advantage of a weaker dollar, which was taken a long and deep breath over the last few days. The dollar index has slipped below 100 even as equity markets charge on – most notably here in the US.

Turning to North America, it is Thursday so we get another look into the health of the American labor sector. It is expected to be announced this morning that 263k Americans filed first-time unemployment claims for the week ending December 2nd. These numbers remain historically low, supporting the Fed’s likely decision to raise interest rates by 25 bps at their policy meeting next Wednesday. It’s been another solid week for US data, although the dollar’s found it harder to ascent with the market having fully priced in next week’s Fed meeting. The US 10-YR treasury yield has actually slipped lower this week, from 2.5% on Friday to 2.35% late yesterday, hindering the greenback. Univ. of Michigan consumer sentiment closes out the data calendar tomorrow morning, to be reported at 10am EST.

On Wednesday, oil prices dipped more than 2% as some doubt crept into the market concerning last month’s OPEC “deal.” The loonie has broken higher though, despite crude’s fall, taking advantage of the greenback’s slide. On Wednesday, the Bank of Canada concluded their own policy meeting and left the headline rate unchanged at 0.50%. Canadian policymakers acknowledged the US economy continues to be trending up, admitting their remains considerable economic slack on their end. There really weren’t many surprises in the statement, most notably on growth or inflation. Policymakers still see the current stance of policy as appropriate, which suggests to most analysts a “wait and see” approach on further moves until at least 2018.

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