EUR/USD
EUR/USD has edged higher alongside the softer USD, reversing some of the recent losses seen in the pair, however, due to position squaring ahead of tomorrow’s ECB policy announcement as EUR/USD trades near 11y lows. Heading into the European market close, ECB sources reported that the ECB will put forward EUR 50bln of QE a month for at least a year at tomorrow's ECB meeting initially sent EUR/USD lower by around 60 pips. Nonetheless, EUR/USD completely retraced the move lower as there are still a number of unknown technicalities regarding QE. Furthermore, markets are broadly expecting the announcement of quantitative easing from the ECB tomorrow, where there still remains a risk of the market being left unsatisfied as the framework for the stimulus may lack operational detail after the initial QE signal is delivered. Additionally, earlier comments from ECB’s Nowotny warned the market not to get too excited about tomorrow’s meeting further dampening optimism for QE.GBP/USD
Yesterday, some analysts attributed the bid tone observed in GBP/USD to the prospect of a positive UK Jobs report today, however, this was completely overshadowed by the BoE minutes. Hawkish dissenters McCafferty and Weale unexpectedly concluded their call for a rate hike as the MPC initially dragged GBP/USD to session lows below the 1.51 handle. Later in the session, GBP/USD pared some if its gains following the Bank of Canada surprise cut slightly lifting the USD-index off lowest levels. Furthermore, a number of investment banks have cut their BoE rate hike forecasts with Deutsche Bank pushing back their estimate to May’16 from Aug’15 and Nomura also delaying their forecast to Feb’16 from Aug.15.USD/CAD
The Bank of Canada shocked markets as they cut rates by 25bps to 0.75% with the central bank adding that the cut was in response to the recent sharp fall in oil prices which will negatively impact Canada’s growth prospects and underlying inflation. In reaction to the rate cut USD/CAD rose 212 pips to break above 1.2200 to print fresh 6 year highs.
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