The Euro found some moderate buying activity after the European Central Bank (ECB) completed its monetary policy meeting with a decision to leave interest rates steady at 1 percent. Following the meeting, ECB President Mario Draghi’s accompanying statement made no direct mention of additional policy easing or changes to the bank’s LTRO programs.
Overall, however, the stance on the economy was not positive with downside risks still seen and this led some voting members of the ECB to vote for rate cuts at the meeting. But the majority was of the view that nominal rates remain at historically low levels (with negative real rates) and since the previous LTRO program has yet to filter completely through the European economy, additional rate reductions were not deemed necessary. Helping to support this view is the fact that economic data has managed to improve throughout the year despite the negative reports that were released last week.
The Euro was higher after the meeting, as the event risk passed without the expected rate cut and the EUR/USD is now trading firmly above the 1.25 level. The gains were propelled after stories surfaced which suggested that the European finance ministry is considering bailout options for Spain that would help private banks to recapitalize without the imposition of major austerity measures (which, of course, would make political approval much easier).
Market focus now turns to the UK as the Bank of England meeting is expected to result in another unchanged policy outcome but there is some potential for mention of additional quantitative easing measures in the near future. Weaker readings in manufacturing data could be the main catalyst for this, with the added feature of bringing some stability back to the FTSE 100 and other regional equity markets.
Other areas to watch will come with the Australian jobs figures and Unemployment Rate scheduled for release. This number has produced some volatility in recent months and it remains clear that the central bank (RBA) will be focused on these numbers to gauge the effects of its own round of interest rate cuts that were put in place at its last meetings. Markets are looking for an unchanged jobs number and an Unemployment Rate of 5.1 percent.
The USD/CAD is showing a very ominous bear candle on the daily charts, which is now suggestive of a test of key historical and Fibonacci support at 1.02. This area is the first level to watch for shorter term buy entries but a daily close below here could accelerate losses to a test of 1.0050 before stronger support enters the picture. Resistance is now seen at 1.0440.
The FTSE 100 is obeying some very clearly defined technical parameters as prices have made a strong short term bounce out of the 5920 area. Long term bears are likely to use any further rallies as selling opportunities, however, given the consistent lower highs that are in view on the daily charts. A clear break of 5920 would confirm this bias, and likely send prices to a test of at least 5605 before the end of the year. Upside resistance is now seen at 5440.