A sense of anticipation has gripped the global markets during trading on Thursday ahead of the European Central Bank meeting, although it is widely expected to conclude without any changes to key policy settings. The ECB’s potential inaction should be of no shock, as the persistent uncertainty in the financial markets has manufactured an environment that continues to leave most central banks on standby.
What will be interesting today is how Mario Draghi will address how the Eurozone should attempt to mitigate the impacts of the Brexit, which has already been speculated to shave GDP growth. It should be kept in mind that even before the Brexit woes, the EU was locked in a losing battle with static inflation, while global instabilities exposed the nation to noticeable downside risks.
There is a strong likelihood that the policy meeting follows a dovish path with doors being left open for further easing in September. Although key policy settings may be left unchanged, Mario Draghi could reiterate his dovish mantra and conclude with the “whatever it takes” pledge, which may install the euro bears with some inspiration.
From a technical standpoint, the EUR/USD is struggling above 1.1000 on the daily timeframe, and a sharp breakdown below this stubborn support could open a path towards 1.0900. Prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. ECB doves could provide bears the encouragement needed to conquer 1.1000, consequently opening the doors towards 1.0900 and potentially lower.
Dollar lurches to 4-month high
The US Dollar Index lurched to fresh four-month highs at 97.32 during trading on Wednesday as expectations mounted over the Federal Reserve raising US rates before year end. Sentiment is turning bullish towards the US economy and the repeatedly impressive domestic economic data has heightened hopes over the Fed taking action in the future.
Critical data such as GDP, employment and retail sales have followed a positive path, consequently providing a compelling reason for the Fed to break the trend of central bank caution. If the persistent Brexit anxieties abate as the year progresses, then the Fed could seize the opportunity to swiftly take action.
From a technical standpoint, the Dollar Index has turned bullish on the daily timeframe as prices are trading above the daily 20 SMA while the MACD has crossed to the upside. The breakout above 97.00 could open a path higher towards 97.50.
Commodity spotlight – WTI oil
WTI crude oil has been on an unpredictable roller coaster ride, with prices casually swinging between losses and gains as a myriad of economic reports provide mixed signals. Prices edged higher on Wednesday, propelling US crude from the two-month lows after a report which showed a ninth straight week of crude inventory draws. Regardless of these short gains, WTI is noticeably depressed, and the lingering oversupply concerns could provide a foundation for another decline towards $44.50.
It should be kept in mind that the fears over slowing global growth have boosted speculation of a potential fall in demand. This toxic mix of excessive supply and declining demand could ensure WTI remains pressed for an extended period. From a technical standpoint, bears need to break back below $44.50 to open the gates towards $43.
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