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Dovish Monetary Policy Prevails

Mario Draghi's dovish tone during the ECB's press conference saw the Central Banker deliver what the markets were expecting to hear, more QE. Albeit the decision on QE expansion would be taken at the next ECB meeting in December, the comments saw the Euro post strong declines into the end of the week.

Weekly Review

The single currency fell by over -2.5% for the week which in turn saw the US Dollar gaining support. Most of the currencies closed the week lower against the Greenback. With the ECB's potential for expanding the QE now on the table, the fundamental interest rate differentials is back on the table, although doubts still linger on the course of the Fed's rate hike plans. However, in the near term, the Euro is expected to weaken regardless of whether the Federal Reserve would hike rates this year or not. The Bank of Canada's interest rate decision was another main event last week and despite the BoC holding rates steady, Governor Poloz revised down the economy's growth forecasts and signaled a period of interest rate stability into 2016.

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The Week Ahead

While last week was all about the ECB and the Euro, the week ahead will see the October FOMC meeting. It is widely expected for the Federal Reserve to hold rates at its meeting next week and there is no press conference scheduled either. The question remains as to how the Fed will draft its statement given the weak labour market print over the last two months and a mixed bag of economic releases since the last Fed meeting. The US third quarter GDP estimates are also expected later and although not as stellar as a 3.9% GDP growth seen in Q2, the expectations are a lot more toned down. 1.6% is the median estimates according to economists polled. A weaker than expected print could no doubt send the US Dollar weaker while also triggering a risk on sentiment that could support the risk currencies. The Bank of Japan is also due out on Friday with the question being whether the BoJ will surprise the markets with an expansion to its QE program, although a majority of economists expect the BoJ to hold steady. USDJPY has been trading strongly in a range and last week’s price action, if anything to go by could potentially signal a break out, which is most likely to be triggered by this week’s events.

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