ECB’s inaction follows trend of central bank caution

The persistent global uncertainties have manufactured an unstable financial landscape which has forced most major central banks to remain on standby. Thursday's anticlimactic ECB meeting concluded with stimulus measures unchanged as policy makers attempted to reevaluate the ramifications of the Brexit result to the European Union. While the ECB was satisfied with the immediate Euro area financial market reaction to the Brexit, it still remains too early to quantify the full impact, with more economic data needed. Although investors were left empty handed in regards to policy changes, Mario Draghi reiterated his dovish remarks which heightened expectations of further easing in September. With optimism growing over the central bank potentially taking action in the future, Euro bears could be installed with further inspiration consequently leaving the EURUSD vulnerable to further losses.

It is becoming increasingly clear that the ongoing global uncertainties have created a tradition of central bank caution. The Bank of Japan, Bank of England and European Central Bank seem to be trapped in a period of standby despite their respective nations screaming for stimulus measures which may provide stability. With speculations rising of a potential US rate hike this year amid improving economic data, it could be the Federal Reserve which breaks this trend of central bank inaction.

From a technical standpoint, the EURUSD pierced below 1.1000 on the daily timeframe consequently opening the doors towards 1.0900. Prices are trading below the daily timeframe while the MACD has crossed to the downside. Previous support at 1.1000 could transform into a dynamic resistance which encourages a further decline towards 1.0900.

 

Global stocks falter

Stock markets entered a slippery decline during trading on Thursday as the terrible combination of disappointing earnings, central bank inaction and recurrent concerns over the global economy weighed heavily on sentiment. Asian markets retreated with the Nikkei trading 1.38% following the Bank of Japan's hesitance on introducing further easing policy to stabilise the depressed economy. European markets were on an erratic ride on Thursday and could edge lower as risk aversion repels investors from riskier assets. Wall Street has strolled back into the red territory and could be poised to open lower if the bearish contagion from Asia and Europe provide a platform for bears to pounce.

The declines in global stocks should be no surprise, and with central bank inaction becoming a frequent theme, most major markets are tired. Further stock market selloffs could be expected in the future as investors come to grip with the state of the current financial landscape.

 

Bank of Japan feeling the burn

The Japanese Yen has been flung onto a chaotic roller coaster this week as expectations kept changing over the Bank of Japan (BoJ) intervening to stabilise the Japanese economy. Earlier in the week there were speculations that Japan was planning a ¥20 trillion package which consequently weakened the Yen. Hopes were rapidly quelled after recent reports suggesting that the BoJ may be hesitant on introducing further easing simply bolstered the value of the Yen. It should be kept in mind that uncertainty is still a recurrent theme in the global markets which continues to leave most major central banks cautious. With the Japanese economy under pressure, the Bank of Japan will be forced to take action and it becomes a matter of when rather than if.

From a technical standpoint, the USDJPY trades a critical level with 107.00 acting as a potential lower high. A breakdown below 105.00 could suggest that prices may decline lower towards 104.00. On the other hand, if bears fail to defend 107.00 then the pair could lurch to 108.50.

 

Commodity spotlight – Gold

Gold displayed a remarkable rebound from the three weeklow lows at $1311 after expectations over future central bank intervention by the European Central Bank provided a foundation for bulls to install a round of buying. The appreciation in prices was compliment with Thursday's slight dollar decline which made the precious metal cheaper to purchase. Bulls are still present and the persistent concerns over the global economy could offer the encouragement needed for Gold to trade higher in the future. It should be kept in mind that factors such as central bank caution, depressed stock markets, and postBrexit uncertainties have boosted Gold's allure. There could be a possibility that $1310 is a higher low in the making but prices must break above $1345 for this to be valid. From a technical standpoint, bulls need to conquer $1345 to be back in the game.