EUR/USD: Ladies And Gentlemen, Here Comes Mario Draghi

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Taken positions

EUR/USD: short at 1.0590, target 1.0410, stop-loss 1.0675, risk factor **

USD/JPY: long at 122.40, target 124.00, profit locked in at 123.10, risk factor **

USD/CHF: long at 1.0255, target 1.0460, stop-loss 1.0170, risk factor **

EUR/JPY: short at 130.70, target 128.50, stop-loss 131.60, risk factor **

EUR/CAD: short at 1.4180, target 1.3950, profit locked in at 1.4170, risk factor **

CHF/JPY: short at 120.50, target 116.00, stop-loss 121.50, risk factor *

AUD/NZD: long at 1.0950, target 1.1300, stop-loss 1.0830, risk factor **

AUD/JPY: long at 88.30, target 91.00, profit locked in at 89.70, risk factor **

Pending Orders:

EUR/CHF: buy at 1.0740, target 1.1040, stop-loss 1.0670, risk factor ***

EUR/USD: Ladies And Gentlemen, Here Comes Mario Draghi

(short for 1.0410)

• The ECB decision and Mario Draghi’s press conference will be in the limelight today. We expect a package of easing measures including: a 10 basis points cut in the deposit rate, additional asset purchases of about EUR 500 billion, with the monthly pace of purchases raised to EUR 75 billion and quantitative easing extended into 2017. In our opinion some targeted enlargement of the pool of purchasable assets appears likely. We expect also a clear statement that the easing bias remains in place. Risks are skewed towards an even bolder stimulus package. In particular, a two-tiered framework for the deposit rate may allow the ECB to cut deeper into negative territory.

• At 13:30 GMT today’s master of ceremony Mario Draghi will hold a press conference. Draghi is known from his inclination to surprise and from his master class in jawboning. That is why markets are really hoping for some kind of dovish surprise. A bold ECB stimulus package may drive the EUR/USD below this-year minimum at 1.0457. A deeper cut in the deposit rate would mostly trigger a short-term psychological effect on the EUR/USD, pressuring it towards the 1.0300-1.0400 area.

• The 0.1% decline in Eurozone retail sales volumes in October suggests that the consumer recovery might be losing some steam.

• November’s Eurozone Composite PMI was revised down from 54.4 to 54.2. But in the first two months of the fourth quarter, the index averaged 54.1, slightly above third-quarter 53.9. This suggests that quarterly GDP growth might have picked up from 0.3% in the third quarter to 0.4%.

• While the ECB is easing its monetary policy, the Fed is preparing the market to a rate hike at its December meeting. San Francisco Fed President John Williams said the Fed is getting “closer and closer” to the point of raising interest rates. It will take a few years to get short-term US interest rates, now near zero, back up to the “new normal” of about 3.5%. He said the decision in December will be not just whether to raise rates but how to communicate the future path of rates.

• In her remarks to the Economic Club of Washington, Fed Chair Janet Yellen expressed confidence in the US economy, saying job growth through October suggested the labor market was healing even if not yet at full strength. Yellen also reaffirmed her view that the drag on US economic growth and inflation from weakness in the global economy and falling commodity prices would moderate next year. Yellen said the timing of the first US rate increase in nearly a decade was not as important as the path of subsequent rises which policymakers expect will be gradual. She said the Fed would weigh incoming data to set the pace of hikes and that policymakers do not expect a mechanical path of rate moves. Yellen also is due to testify on the economic outlook before a joint Congressional committee today.

• Atlanta Fed President Dennis Lockhart said US economic data would have to drastically alter the nation's outlook over the next two weeks to change the case for an initial hike in interest rates when the Federal Reserve next meets on December 15-16. In his opinion the Fed's first rate hike should be seen as vote of confidence in the economy and a signal to households and businesses to spend and invest.

• In its Beige Book report of anecdotal information on business activity collected from contacts nationwide, the Fed said US economic activity continued to expand at a modest pace in most regions from early-October through mid-November. The Fed said consumer spending increased in nearly all districts. Manufacturing activity remained mixed, the Fed added, with exports continuing to fall as a result of the strong U.S. dollar, low commodity prices and weak global demand.

• ADP National Employment Report showed US private employers added 217k jobs in November, above expectations (190k) and the most since June. Private payroll gains in October were revised up to 196k from an originally reported 182k increase. Labor Department’s report will be released on Friday. ADP data supported our forecast for non-farm payrolls that is at 210k, above the market consensus of 200k.

• We expect December Fed statement to be relatively hawkish suggesting that the path of further hikes will be gradual. This may reverse the EUR/USD trend. But the short-term outlook remains bearish. 2015 low at 1.0457 is likely to be broken today.

Significant technical analysis levels:

Resistance: 1.0620 (high Dec 1), 1.0640 (session high Dec 2), 1.0648 (10-day ema)

Support: 1.0521 (low Apr 13), 1.0457 (low Mar 16), 1.0400 (psychological level)

EUR/CAD: Loonie Stronger After BoC Decision, As We Expected

(short for 1.3950)

• The Bank of Canada kept its benchmark rate steady at 0.5%, as expected, even though it said vulnerabilities in the household sector, which has been stretched by high debt fueled by cheap mortgage costs, continued to edge higher. Despite signaling the challenges in the household sector, it said “overall risks to financial stability are evolving as expected.”

• The bank shrugged off what it characterized as slightly higher bond yields in Canada, saying that financial conditions remain accommodative and the risks around the inflation profile remained roughly balanced.

• It said Canada's complex and lengthy adjustment to lower terms of trade, driven by lower oil and commodity prices, were being aided by the ongoing US recovery, a lower Canadian dollar, and the Bank of Canada's two rate cuts this year.

• We do not expect more interest rate cuts in Canada and are the opinion that the next rate change will be a hike.

• The CAD rose against the USD after the Bank of Canada held interest rates steady, as we expected. We stay sideways on the USD/CAD as there is a risk of USD strengthening in the coming days. However, our EUR/CAD short is in a good shape now.

Significant technical analysis levels:

Resistance: 1.4226 (high Dec 1), 1.4248 (high Nov 24), 1.4280 (high Nov 23)

Support: 1.4100 (low Dec 1), 1.4060 (low Nov 30), 1.4000 (psychological level)