Market News & Insights
20 October 2016

ECB to Taper Taper Talk?

The final US presidential debate is out of the way and if the bookies are to be believed the race is well and truly over, Paddy Power have already paid out on Clinton becoming the first female president of the United States. There are even rumors the Republican party will forego the usual process of flying their candidate to key states pre-election in a two day whirlwind tour,  apparently it’s just not worth it.    We’ve learned already this year that nothing is said and done and while we would still expect to see volatility around the elections in early November, Clinton winning favors a stronger USD as Trump had actively voiced plans to devalue to USD to increase export demand. The concerns for the US is what state the country is in following the election, as there is clearly a huge divide forming and discontent across broader America, Clinton will have to try and unify a fractured public, and it would seem few feel she is the right person for that particular job.

The USD traded slightly lower through yesterday, but has started today on a firmer footing. Risk appetite was broadly supported with European stocks helped higher by banking and retail stocks, while in the US indices posted their second straight advance ahead of the presidential debate. GBP had another attempt at rallying higher following some slightly better jobs data, wage growth advancing more than expected, however we still failed to break key area’s highlighted yesterday for the pound and the currency remains volatile to Brexit chat. The Euro had traded lower through much of the day but into the afternoon started to recover, ahead of today’s key ECB meeting.

Focus today is on the ECB and their response to the taper comments from several weeks ago. Given the response of ECB members thus far, to try and assure markets that tapering was a long way away, we would assume the ECB will continue with this mantra. There is no actual change expected in ECB policy today, US elections and the potential of US rate hikes later in the year  as well as the potential invoking of Article 50 in Q1 next year, would likely favor the ECB standing by to assess the impact on the broader markets. They have remained consistent in their rhetoric that they have the tools required to support the region, if needed, I do not expect this to change. The Euro has weakened over 2.5% since the beginning of last week, so without a change in policy or anything notably dovish from the ECB press conference, the single currency likely has some scope to rally higher.  EURUSD still hold above keep support around 1.0940, a break below opens up the lower range while a break back above 1.1100 favors progression back towards 1.1400 are.

Outside of the ECB, we still have plenty of other data to take interest. Retails sales figures from the UK are due, and despite the fears around Brexit it is business as usual until Article 50 is invoked and data thus far continues to support decent growth in the UK, this may well provide GBP some further support as we’ve had a month of solid UK data with very little impact for the pound. EURGBP is supported ahead of .8900 which is yesterday’s low reading, .8957 holds moves higher in the short term, a break above brings us back towards .9000