The CAD was predictably choppy on the back of the tragic events in Ottawa, as traders speculated on what was taking place and the outcome. However, the situation seems to be under control now and this has also brought some calm for the CAD. The euro was under pressure as traders continued to speculate what additional measures the ECB might be looking to take to spur growth.
The rumour mill has been in overdrive on what the ECB may or may not do and this has really been the main driver of price action. Investors focused on reports that the ECB was buying Spanish covered bonds and this saw peripheral bond yields cool. Additionally ECB member Mr Nowotny acknowledged that corporate bonds can expand the balance sheet and this fanned speculation that it is a possibility. However, he didn’t quite say it’s a step the ECB is ready to take and said no decision had been made yet.
Investors also continue to speculate on results of the bank stress test, which are due out on October 26. EUR/USD continued to decline and I feel there is room for further weakness here. A retest of October lows in the $1.2500 region is on the cards. Today we have a raft of PMIs out of the eurozone and if we see further weakness then the euro could extend its losses. I would be a seller of any moves back into the $1.2700 region in the near term.