QE

As usual, Thursday’s European Central Bank (ECB) policy decision and press conference will be watched closely for clues regarding the bank’s current stance on monetary policy, including its views on Eurozone inflation, interest rates, and potential tapering of the ECB’s massive quantitative easing (QE) program. Of primary concern for euro traders will be whether or not a timeline for QE tapering will be addressed, as well as whether ECB President Mario Draghi will verbally attempt to stem the strength of the euro. Last month, minutes from July’s ECB meeting unveiled concerns about the possibility of the euro “overshooting.”

As the US dollar generally remained resilient on Tuesday after having pulled back on Monday, EUR/USD fell back towards major support around the 1.0950 level.

European stocks have started Tuesday’s session on the front foot after a lacklustre performance on Monday. Sentiment remains upbeat for global equities mainly because of the actions of central banks, rebounding oil prices and the mostly better-than-expected US corporate earnings results.

Precious metals are surging across the board, with silver and now platinum looking particularly bullish. As we reported on Tuesday, the pressure has been building for precious metals like silver to explode higher in recent months. The significantly weaker dollar has helped to underpin several buck-denominated commodities of late. The US currency has depreciated because of receding expectations about the pace of interest rate rises. According to the Fed Fund Futures, the likelihood of a rate hike by December is now only 50 per cent. Other major central banks have also either turned more dovish or maintained their extremely loose policy stances. The ECB is likely to echo this sentiment today, while the Swedish central bank has already decided to expand its QE package this morning.

As we noted yesterday, market volatility was expected to pick up as we moved through the week as the top-tier data releases and traders at their desks gradually ramped up. Today we’re getting our first look at that phenomenon, with Federal Reserve Chair Janet Yellen making some waves at her speech to the Economic Club of New York.

It’s been a harrowing trip for global markets today, and ECB President Mario Draghi was the conductor.

First traders were impressed by the size and scope of the ECB’s aggressive actions to ease monetary policy, but the market’s collective view shifted to dismay when Draghi later indicated that further rate cuts were neither anticipated nor needed. As my colleague James Chen noted earlier today, “While not as disappointing as December’s under-delivery of easing actions, the press conference essentially amounted to a forward-looking disappointment due to Draghi’s relatively strong comments regarding future rate cuts.”

After massively disappointing traders’ high hopes back in December, “Super” Mario Draghi and company were not going to make the same mistake again. Expectant traders and analysts were looking for the ECB to cut its deposit rate by 10bps and increase its quantitative easing program by €10B per month, but the so-called “whisper numbers” were even more aggressive than that. Regardless, the ECB busted out its big bazooka at the conclusion of today’s monetary policy meeting, enacting a series of aggressive proposals.

Earlier today, we talked about the recent strength of the euro in the context of EUR/USD, but the moves in EUR/GBP since the start of December have been even more impressive. Since bottoming near the .7000 handle in late November, the normally quiet pair has tacked on over 800 pips to hit a 1-year high above .7800.

Any time markets are volatile, traders look to perceived “leaders” to tell them everything is going to be alright (see the popularity of CNBC’s recent “Markets in Turmoil” specials), and today’s missionary du jour took on that mantle willingly.

So, the Bank of England day finally arrives and the rate decision is due in less than half an hour, but will it be a Super Thursday for once? It could be if you are on the right side of the potentially sharp move for the pound!