- The European Central Bank surprised at their meeting on Thursday, and now market participants are discounting the next wave easing to commence in December. Two EUR-crosses stood out in particular this week, given their reaction to the ECB and their respective ensuing significant responses: EUR/USD declined sharply by -3.00% to $1.1011, breaking its uptrend from the March, April, and July lows in the process (perhaps the beginning of a longer-term bear flag); and EUR/AUD dropped by -2.31% to A$1.5258 (losing its uptrend from the April, May, and June lows).
- If a deposit rate cut is coming in December, the market may have already effectively priced it in: EUR/USD dropped from near $1.1350 ahead of the meeting to a closing low of $1.1011 this week. It’s the second takeaway from the ECB meeting that will be the potential fuel for further Euro losses going forward: the ECB’s apparent lack of faith in a continued rebound in growth and inflation readings. Citing concerns over growth in emerging markets and stagnant energy prices (the latest Euro-Zone CPI data showed headline inflation fell negative to -0.1% y/y while core inflation was only +0.9% y/y), the ECB has found the prospect of keeping policy steady unpalatable. Changes to the QE program seem likely, perhaps its size, duration, or run rate.