Draghi gave himself the flexibility to keep QE going beyond Sept 2018 and the market sent EUR/USD to the lowest since July. The US dollar was the top performer Thursday while the euro lagged. Japanese CPI is due up next. One EURUSD Premium trade was closed at gain, while a new one was opened, currently at a loss.

We warned ahead of the ECB decision that Draghi would want to preserve the option of continuing QE beyond September. “The market could interpret the flexibility as dovish and send the euro lower,’ we wrote. “In addition, the large net-long EUR position could be waiting to ‘sell the fact’ on a taper announcement.’

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That’s what happened as EUR/USD broke the October and August lows to break the neckline of a well-defined head-and-shoulders pattern. It would be wrong to give all the credit to the euro, the US dollar was broadly stronger and finished at the highs of the day. Commodity currencies weakened substantially and cable reversed virtually all of Wednesday’s climb.

Pefect USD Storm?

A driver of USD strength is the bond market as 10-year yields consolidate above 2.40%. A soft 7-year auction added to the bond move, along with the House passing a budget motion that brings a tax cut closer. A report from Politico also said Yellen is out of the running for the Fed chair and that it’s now between Taylor and Powell.

The yen will be in focus in the hours ahead with September CPI numbers due at 2330 GMT. The consensus is for a 0.7% y/y rise on the headline and +0.2% y/y on ex-fresh food and energy. Abe is rumored to have asked for a extra budget as he restarts efforts to get the economy moving and inflation higher.

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Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.


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