Euro falls after ECB slashes rates and restarts QE
The European Central Bank slashed interest rates for the first time since 2016. The bank lowered the deposit facility rate by 10 basis points from -0.40% to -0.50% in a move likely to be highlighted by Donald Trump. The bank also announced that it will restart QE again in November this year. The QE will involve the purchase of assets worth more than 20 billion euro per month. In the statement, the bank said that:
Net purchases will be restarted under the Governing Council’s asset purchase programme (APP) at a monthly pace of €20 billion as from 1 November. The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.
Chinese stocks and American futures rose today as investors reacted to the Trump administration’s plan to postpone some of the tariffs on China for two weeks. In a tweet, the president said that the Chinese vice premier had requested for this postponement. The news came a few hours after China released a list of American goods that will be exempt from tariffs. It also came a few weeks before the two countries are expected to meet to try and iron out the trade issues. While investors believe that a deal might not happen during these meetings, they are positive because the escalation is not continuing.
After falling in the morning, the Japanese yen rose following the release of machinery and PPI data. In July, the core machinery orders rose by an annualized rate of 0.3%, which was better than the expected decline of -4.5%. The orders had risen by 12.5% in June. On a MoM basis, the core machinery orders declined by -6.6%, which was better than the consensus estimate of -9.0%. In August, the PPI declined by -0.9% after declining by -0.6% in July. The data came two days after South Korea took Japan to the World Trade Organization (WTO) for the ongoing trade war between the two countries.
The price of crude oil declined sharply after the International Energy Agency released its monthly report. The organization warned OPEC that it will face unprecedented surplus in the next year. The report said that while the market is expected to face a small deficit this year, supplies will likely surge in the coming year. This statement is likely to increase pressure on the OPEC and its de facto leader, Saudi Arabia, to cut production more. Additional pressure for Saudi Arabia will now come from the challenge on how to boost prices as the IPO for Saudi Aramco nears.
The XBR/USD pair continued the declines started yesterday. It is now trading at 59.50, which is significantly lower than yesterday’s high of 63.19. On the hourly chart, the current price is along the 38.2% Fibonacci Retracement level while the RSI has dropped to the current level of 22. The Average Directional Index (ADX), which measures the strength of a trend has risen to a high of 38. The double EMA indicators have also made a crossover. This is an indication that the pair will likely continue to decline.
The USD/JPY pair declined from a high of 108.17 to a low of 107.79. As this decline happened, the 14-day and 28-day moving averages made a bearish crossover on the 30-minute chart below. At the same time, the RSI declined from a high of 78 to the current 33. Further, the Average Directional Index (ADX) declined, which is a sign that the pair could still resume the previous upward trend. This could happen when the pair hits the 23.6% Fibonacci Retracement level of 107.58.
The EUR/USD pair rose and then declined sharply after the ECB released its interest rates decision. The pair rose sharply to a high of 1.1068 before declining to a low of 1.0960. As of writing, the pair is trading at 1.0975 as traders wait for the ECB press conference. This price is along the lower line of the Bollinger Bands and lower than the previous support of 1.1013. The ATR indicator has risen sharply too as volatility increases. The pair will likely struggle to find direction as traders digest the ECB’s moves.