Surprise ECB move spurs dollar gains

Friday, September 05, 2014

Asian equity indices were largely unchanged overnight as investors shrugged off yesterday’s surprise ECB policy decision. Both the Nikkei and TOPIX held just below their opening levels while mainland Chinese stocks were supported higher on stable US data. Many market participants were caught off guard as the ECB lowered eurozone interest rates to 0.05% and announced that it would purchase hundreds of billions of euros worth of private sector bonds in an attempt to combat stagnation in eurozone growth. With the consensus view among analysts and economists that the ECB would leave rates unchanged, the surprise move to cut both the refinancing and deposit rates saw heavy selling pressure in the euro as it slipped to a 14-month low, below 1.3000. Growth and inflation forecasts for the eurozone were revised slightly lower and comments made by Draghi in the subsequent press conference stated that interest rates were now at the lower bound, more or less ruling out any further cuts to rates. The bond buying is expected to expand the ECB balance sheet by as much as $700bn and with the currency weakening against global peers we could see policymakers instigate further measures to push the euro weaker, benefiting global trade.

Gold prices slipped towards a 12-week low yesterday, shedding 0.61% throughout the session predominantly on dollar strength. The dollar index surged towards 83.800 yesterday largely driven by the gains against the euro after the ECB’s surprise decision to boost stimulus. Economic data released yesterday further outlined the attractiveness of US markets with initial weekly jobless claims coming in broadly in line with expectations while the ISM non-manufacturing composite index surpassed expectations, posting a reading of 59.6 in August against the 57.7 reading expected by market participants. With non-farm payrolls and the unemployment rate due out later this afternoon investors will be given further clarity on the state of the employment market, potentially shoring up support for the dollar against its major peers.

Three month LME nickel futures look set to post their 5th consecutive week of gains as prices rallied off $19,000 yesterday, testing resistance towards $19,500/tonne. Futures have finally managed to breakout of the range that had dominated trading activity throughout August as prices were underpinned by the 50 day MA on the upside while protracted losses were stopped short by tentative levels towards $18,500. Nickel has been supported higher in recent weeks on concerns that the Philippines was considering following Indonesia in banning exports of unprocessed minerals. Supply concerns could see nickel, which has been one of the best performing metals traded on the LME this year, rally back towards levels seen in early June while significant disruptions could target the year-to-date highs seen in May.   

EUR plummets to a 14-month low against the dollar

EUR Curncy Euro Spot Daily 05 2014 09 05 07 47 41

Gold prices slip on ECB stimulus measures yesterday

XAU Curncy Gold Spot Oz D 2014 09 05 07 54 09

LME 3-M nickel prices breakout on the upside

LMNIDS03 Comdty LME NICKEL 3 2014 09 05 08 05 34

Events for today

0600

JP

Jul

Leading Index

0700

DE

Jul

Industrial Production

1330

US

Aug

NF Payrolls

1330

US

Aug

Unemployment Rate

All times UK Local Time

Topics: Gold, EUR, DXY, LME, Nickel
More from: Kash Kamal