ECB policy meeting - rates to stay unchanged; Draghi may offer volatility
Traders will have a busy day, with the ECB event risk next in line to bring volatility to the Euro. However, having announced the OMT program last month, the decision in rates may be more decaffeinated-than-usual, as the market consensus is all-rates settings will be intact. As Jamie Coleman, Founder at Forexlive, notes, "the ECB is unlikely to cut its refi or deposit rates while inflation is running significantly above its 2% target. They are even less likely to do so than normal given the rift between the ultra-orthodox Bundesbank and the more adventurous managing board."
Following the rates decision, the press conference by President Mr. Draghi may have more juice to squeeze, not directly from the President himself, but by hypothetical questions from the press over the Spanish bailout. Will Draghi be successful at defending the case of ECB bond buys aiming to improve the monetary policy transmission having in mind that Spain will be forced to bite the bullet through the ESM first to kick-start the short-term paper purchases? Both positions seem "intellectually inconsistent" Mr. Coleman thinks, and he adds that "if the ECB is buying bonds to influence the transmission mechanism, it should buy as it sees fit. If it is bailing out the sovereign, it should seek conditions."
EUR/USD - No signs of range breaking
The EUR/USD, while midly supported by the latest rush to bid the S&P 500, the movie has not changed and range trading persists until defendants of 1.30 or 1.28 give in, an scenario not really expected ahead of the US payrolls print tomorrow. As rightly pointed by John J Hardy, Head of FX Strategy at Saxo Bank, "perhaps by the end of the week we will get a close either above 1.3000 or below 1.2800 and thus potentially set the direction for the weeks ahead."
Since the good news about the EUR should in principle almost be discounted, additional gains will be much harder to achieve, and may consist on the possible demerits of the USD rather than any EUR-positive headline at this point, with Spain bailout hope sidelined for now. Besides, the threat from Moody's to slash the country's rating to 'junk' territory looms near too.
JP Morgan FX Strategist Thomas Anthonj, notes the defense of 1.2817/1.2775 in EUR/USD is absolutely essential. If bulls finally give up, such a break, according to the trader, would see levels around 1.26 being threatened (int. 50 %). On the upside, only a break above the 1.32, "would classically confirm a game change on big scale" he adds.
In view of FXstreet.com Chief Strategist Valeria Bednarik, "it is all about technical levels and where stops are today, rather than trying to understand what are on politicians minds. With 1.2880/1.2970 area dominating the week, some stops are below 1.2880 but bigger ones come around the 1.2830 area: if below, the pair may attempt to test 1.2745, 38.2% retracement of the latest bullish run and past June monthly high. To the upside, buyers will surge above 1.2970, aiming to push price towards 1.3030 first, and even near 1.3100 if the pair gathers enough momentum."
Romney takes the lead
According to the first polls post the first round of presidential debate in the United States, Mitt Romney is taking the lead, after an aggressive and rather confident stance against his opponent, President Barack Obama. Polls showed more than half of the undecided voters group had changed their opinion toward Romney, while barely 10% said so about the President. Results at CNN-ORC Post-Debate flash poll about who won the debate show Romney 67%, Obama 25%. +_ 4%.