Analysts split around the ECB meeting

Asian markets have retreated heading into the ECB meeting, which promises to deliver some volatility.

Source: Bloomberg

European equities rallied yesterday as downgraded geopolitical risk proved a catalyst to price action. With Russia and Ukraine looking to resolve their conflict, Russian equities rallied along with the ruble as investors cheered the news. A resolution would reduce the probability of more sanctions being imposed and prevent further strain on the region. Europe is heading into autumn, when energy needs tend to rise, and with Russia controlling most of the region’s supplies, any restrictions could be detrimental.

Having said that, focus swiftly shifts to the ECB, where analysts are quite split on how events might unfold. The minimum bid rate is announced at 21.45 AEST, along with the marginal lending facility and deposit facility rate. Consensus is for no change in these readings and any surprises here could therefore result in a move.

The ECB press conference will then be held at 22.30 AEST, where Mario Draghi will be under pressure to at least signal imminent stimulus. After his speech at Jackson Hole, Draghi put pressure on himself to deliver but the market remains unconvinced he will act. Analysts have been quite split on what Draghi’s speech, with a small camp suggesting he’ll announce a QE program and the majority feeling he’ll signal a stimulus announcement at a future meeting. If that happens, the debate will switch to what sort of stimulus package the ECB could implement – the consensus is it will be centred on asset-backed securities (ABS). 

Traders still looking to sell the euro

As far as price action is concerned, we’re already seeing some caution exercised with opening calls for the region pointing towards mild weakness. EUR/USD has come off its lows heading into the ECB meeting, with some traders closing out shorts before the decision.

I feel there is a real risk of a reversal in equities and the euro, unless the ECB signals an imminent plan for QE. Even if the euro rises today, I’d still be looking to sell it on strength. Any indication that it is business as usual from the ECB could see EUR/USD run up to $1.3227 – the 61.8% retracement of the July 2013 low to May 2014 high. We could then see sellers return in this region and take the pair lower.

However, should we see some action today, then a retest of $1.3100 is likely and momentum plays could then see the pair trade even lower. The BoE will also be on the wires today and this could result in some volatility for the sterling, which has been under significant pressure recently.

Nikkei strength subsides

Around the Asian region, the most significant move has been a pullback in the Nikkei – a significant outperformer all week. We’d seen growing interest heading into the cabinet reshuffle and the BoJ meeting.

However, it now seems profit taking has kicked in, with investors happy to ‘sell the fact’. While I still feel buying the dips is the best strategy with USD/JPY and the Nikkei, it seems a fresh catalyst might be needed to reignite the trade. This might have to be on the US side of things, as greenback strength would achieve the desired effect. On the US economic calendar today we have trade balance, unemployment claims and the ISM non-manufacturing PMI. There are also a few Fed members speaking, including Fisher, Kocherlakota and Powell.

Iron ore continues to struggle

After having been underpinned by yield plays for an extended period, the ASX 200 has finally given up ground today, with the weight of the under-firing materials plays finally catching up. Strain in iron ore prices continues to spook investors and this has continued in Asian trade as iron ore futures have struggled.

Fortescue has outperformed today after reiterating its FY goal of shipping 155Mt-160Mt of iron ore. Its stock also found support in the $4 region, but the price action still remains unconvincing in the near term. Perhaps strength in AUD/USD hasn’t done the local market any favours today following a lift from better-than-expected trade balance numbers. The RBA has said time and time again that a firmer AUD is not ideal for the domestic market, and this seems to be really having an impact on equities.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.