Market Drivers October 21, 2016
Europe and Asia
GBP: UK PSNB 10.12B vs. 8.20B
North America
CAD: CPI 8:30
CAD: Retail Sales 8:30
With the exception of the yen which strengthened on risk aversion flows, the dollar was higher against all its trading partners as the fall-out from yesterday's ECB presser continued to reverberate through Asia and early European session trade.
The euro fell to fresh four month lows breaking below the 1.0900 barrier as the selling in the pair continued throughout the night. In yesterday's ECB press conference President Draghi gave no indication that the central bank was considering a taper of the current QE program. He did however note that the council was waiting for the December economic assessment from the central bank's economists before making any additional policy decisions.
Still most traders now anticipate that the program will at the very least be extended beyond the original 18 month tenor and that is likely to mean that the ECB will remain an avid buyer of the region's bonds providing a natural caps on rates. As our colleague Kathy Lien noted yesterday:
"...this view was shared by bond traders who took German and French yields lower after the rate decision. The German-U.S. yield spread declined today which is in line with the sell-off in EUR/USD."
The drop in the euro dragged all the other majors lower against the buck with cable, Aussie and loonie all hitting session lows by the start of London trade. Cable was further pressured lower by the fact the Public Sector Net Borrowing deteriorated coming at 10.12B versus 8.20B eyed. Corporate taxes fell for the first time since 2009 suggesting the Brexit is already having an impact on business activity.
The pair has tried to stabilize at the 1.2200 over the past week or so, but so far any rally in cable quickly died on the vine as sellers have been all too willing to materialize above the 1.2300 level. Although cable is grossly oversold, the pair won't bounce without some sort of fundamental catalyst and so far the news on the Brexit front has been nothing but dour.
In North America today only Canadian data is on tap as both CPI and Retail Sales will be released with market looking for an improvement in both. In the US the calendar is barren and trading could be relatively muted as there is little fresh data to move the markets now. With US yields stationary at the 1.75% level, all the capital markets appear to be in wait and see mode and FX could stay rangebound into the weekend close.