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ECB Will Do What It Must

Central Bank President Mario Draghi Sends Signals of ECB Accommodation In Order to Stoke Inflation

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Despite facing some opposition from Bundesbank Chief Jens Weidmann, ECB President Mario Draghi signaled that the European Central Bank would be ready to expand its accommodative monetary policy when it meets this December. Last week was marked by dovish talk from almost all the ECB Governing Council Members which led to the Euro turning sharply lower.

Draghi Sends Strong Signal

ECB President Mario Draghi speaking at an event in Frankfurt on Friday sent a strong reminder to markets that the ECB will form a strong consensus at the December meeting, despite facing dissent from some of the hawkish members on the board including Bundesbank Chief Jens Weidmann. Draghi said that the ECB would take whatever action it can with all the available instruments under its mandate. Earlier in the day, Bundesbank Chief Weidmann noted that the drop in energy prices was an indirect economic stimulus rather than being a harbinger of deflation and was convinced that low oil prices were driving the low rates. Overall, Weidmann's comments come starkly in opposition to most other ECB members including Draghi. A similar theme had played out earlier this year when Weidmann was a staunch opponent towards using asset purchases as a monetary policy tool but eventually gave in to the larger consensus.

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Canada Inflation Unchanged

Consumer price inflation in Canada was unchanged at 1.00% for the month ending in October according to the latest data released by Statistics Canada on Friday. The unchanged print came about as lower oil prices kept inflationary pressures subdued. However, according to the most recent release, annualized core CPI stayed steady at 2.10%, keeping it above the Bank of Canada’s 2.00% inflation target rate. The consumer price numbers from Canada were largely in-line with expectations, showing no major surprises. Retail sales on the other hand surprised analysts, declining -0.50% and posting the largest dip in sales in nearly eight months. The core retail sales figure which excludes the volatile components also fell by -0.50%. Combined, the mixed data saw the Canadian dollar turn very volatile, with USDCAD settling Friday’s trading session at 1.3345 as the Canadian dollar failed to capitalize on the short-term correction in the US Dollar.

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Gold Back Near Multi-Year Lows

Gold prices erased all the gains from the previous momentum higher after failing to capitalize on a strong start to the prior week. Gold prices initially opened the earlier week higher at 1087 on Monday after the Paris terror attacks and tested the highs to 1088 but soon gave up on its gains to decline substantially, losing -0.80% for the week while silver prices declined -0.71% to trade near a 52-week low. Silver prices settled at $14.16 by Friday’s close. The commodity markets in general were weak across the board, despite the Australian and the Kiwi dollars managing to post a strong rally for the week. Commodity prices failed to build upward momentum on the back of a weaker US Dollar, which fell on profit-taking. The Fed is expected to hike rates in December and the Dollar could remain well supported into the event, keeping commodities subdued across the board.

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Euro Area Flash PMI Figures Due

The day ahead is busy for the Euro Area with various flash manufacturing and services PMI numbers due from France, Germany and the aggregate Euro Area. Expectations are for the Euro Area flash manufacturing PMI to have remained unchanged at 52.3 in the month of November, while the flash services PMI is expected to stay on hold at 54.1. After last week's dovish tone from ECB Officials, the Euro is likely to see some upside or a recovery rally on a day where data from the US and UK are non-existent. EURGBP continued to post losses, but managed to close Friday’s session at 0.7006. Prices have continuously rebounded from near the lows of 0.6992 over the past 4-consecutive sessions after the EURGBP declined from highs near 0.74146 weeks ago. With the ECB expected to come out with further accommodation, EURGBP could potentially weaken further in the near-term.

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