FX market outlook

FX market outlook

Euro slides after ECB; pushes up dollar to 7½-month high.

The euro was testing the 1.09 dollar level in today’s Asian session for the first time since March as the single currency continued to come under pressure from yesterday’s ECB policy meeting. The euro’s weakness pushed up the greenback, with the dollar index climbing to a 7½-month high today.

Sentiment for the euro turned bearish after ECB President Mario Draghi told reporters on Thursday that the central bank had not discussed tapering, contrary to recent rumours. And while Draghi did not explicitly say that the ECB’s massive asset purchase program will be extended beyond March 2017, he indicated such a decision will be taken in December and that it’s unlikely for the program to end abruptly.

The euro hit a 7½-month low of 1.0892 dollars in late Asian trading today. It was steadier against the yen at 113.30 but dropped to a 2-week low against the pound at 0.8895.

The dollar rose on the back of the sliding euro, hitting 104.20 yen earlier in Asian trading before easing to 103.92 yen in late session. Also helping the greenback higher were solid data out of the US yesterday which support the case for a Fed rate hike in December.

The strong US currency was negative for commodities though as crude oil prices extended their losses despite signs of a tightening oil market. US crude was last down at $50.56 per dollar.

The Canadian and New Zealand dollars followed commodity prices lower. The US dollar firmed slightly to 1.3235 versus the loonie, while the kiwi was down 0.3% at 0.7167. The Australian dollar bucked the trend however, rising by 0.2% to 0.7642 as it attempted to recoup some of yesterday’s sharp losses.

The Chines yuan hit a fresh 6-year low of 6.7602 per dollar on Friday as it was pressured by the bullish dollar and a weaker midpoint fix by the People’s Bank of China. The yuan failed to find support from strong housing data. House prices in China rose by 11.2% in September – the highest on record and up from 9.2% in August.

In other currencies, sterling was stable despite a big miss in UK retail sales numbers yesterday. There was also little reaction to developments at the EU summit where British PM Theresa May is meeting other EU leaders for the first time since her appointment. The pound last stood at 1.2243 dollars in late Asian trading.

Coming up later in the day, Canadian inflation and retail sales figures will be watched along with the flash consumer confidence index for the Eurozone. Also likely to get some attention are speeches by the Fed’s Tarullo and Williams.