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For the 24 hours to 23:00 GMT, the USD declined 0.61% against the CHF and closed at 0.9502.

In the Asian session, at GMT0300, the pair is trading at 0.9450, with the USD trading 0.55% lower against the CHF from yesterday’s close.

The pair is expected to find support at 0.9403, and a fall through could take it to the next support level of 0.9355. The pair is expected to find its first resistance at 0.9534, and a rise through could take it to the next resistance level of 0.9617.

Going ahead, investors will look forward to Switzerland’s unemployment rate data for August, slated to release in a while.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 1.00% against the CAD and closed at 1.2114.

In economic news, Canada’s building permits registered a drop of 3.5% on a monthly basis in July, more than market expectations for a fall of 1.5% and dipping for the first time in four months. Building permits had recorded a revised rise of 4.4% in the previous month. Moreover, the nation’s seasonally adjusted Ivey PMI eased to a level of 56.3 in August, compared to a level of 60.0 in the previous month.

In the Asian session, at GMT0300, the pair is trading at 1.2071, with the USD trading 0.35% lower against the CAD from yesterday’s close.

The pair is expected to find support at 1.2012, and a fall through could take it to the next support level of 1.1953. The pair is expected to find its first resistance at 1.2183, and a rise through could take it to the next resistance level of 1.2295.

Ahead in the day, traders would draw their attention to Canada’s unemployment rate for August.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

Key points

• Draghi confirmed the bulk of QE decisions is likely in October – the 33% limits will not be lifted, hence capital key deviations continue
• The inflation outlook was revised lower reflecting the stronger euro – a substantial degree of monetary accommodation is still needed
• The underlying euro momentum remains strong and any dips in EUR/USD should be shallow and short-lived
• Focus on the euro and the smaller concern about an abrupt end to QE resulted in a strong performance for the periphery bond markets

The ECB left its policy measures unchanged and President Mario Draghi confirmed that the bulk of decisions regarding the QE purchases beyond 2017 will most likely be taken in October. There was a lot of focus on the exchange rate development and during the introductory statement Draghi mentioned the euro appreciation three times, saying that ‘the recent volatility in the exchange rate represents a source of uncertainty that requires monitoring'. Notably, the FX market did not perceive Draghi as dovish enough to counteract the strong underlying momentum and EUR/USD ended higher. In fixed income markets, the periphery was the big winner, reflecting it is now deemed more likely that the QE programme will continue in 2018.

The discussion about how to continue the QE programme beyond 2017 has started and Draghi gave some insights. First of all, the sequencing in the exit strategy was not discussed, hence it was confirmed that policy rates will remain at their present levels after the QE programme has ended. Secondly, the ECB did not consider lifting the 33% issue/issuer limits. Related to this, the ECB did not discuss scarcity issues but Draghi argued that the ECB has repeatedly shown its ability to deal with this. Instead, focus was on the length and size of the programme including pros and cons of different scenarios for the future purchases. In addition, Draghi opened up for higher purchases in France, Italy and Spain and lower ones in Germany and the Netherlands where the holdings are approaching the 33% limit, as he said there has always been and will always be deviation from the capital key distribution.

We still believe the ECB will announce a reduction in its QE purchases to EUR40bn per month in H1 18 at the next meeting in October. The programme should be continued without lifting the 33% limits, but instead be based on continued capital key deviations. We also consider it likely that the ECB will buy a higher share of corporate bonds. These purchases will have a more direct economic impact and the ECB's holdings are not close to the 70% ISIN limit.

Downward revision to the inflation forecast due to stronger euro

The Governing Council discussed three topics at today's meeting and Draghi's conclusion was the following.

1. The strong growth momentum boosts confidence that inflation will pick up eventually. Related to this, the ECB lifted its GDP growth forecast for 2017 to 2.2% from 1.9% reflecting the recent strong data. The projections for 2018 and 2019 were kept unchanged at 1.8% and 1.7%, respectively. The ECB added that there are downside risks to the growth outlook related to developments in foreign exchange markets.

2. The inflation outlook was revised down a bit, mainly reflecting the euro appreciation. It was still judged that a substantial degree of monetary accommodation was needed for underlying prices to pick up. The ECB kept its 2017 inflation forecast unchanged at 1.5% but lowered the 2018 and 2019 forecast by 0.1pp to 1.2% and 1.5%, respectively. Interestingly, the ECB lowered its core inflation forecast for 2019 by 0.2pp to 1.5%.

3. The exchange rate was once again described as not being a policy target, but Draghi said it is very important for growth and inflation and to such an extent that the medium-term outlook for inflation was revised down. Due to this and according to Draghi, the ECB must take exchange rate developments into account in its decisions as also reflected in the comment in the introductory statement about the exchange rate's possible implications for the medium-term outlook for price stability.

FX: underlying EUR momentum remains strong

The FX market bought the pair on ECB's more positive assessment of economic growth this year and the signals that an announcement on monetary policy awaits in October. However, at the press conference Draghi made an effort to cap a further rise in EUR/USD by stressing the negative impact on the medium-term outlook for inflation from the stronger euro. Hence, while the price action today underscores our view that underlying euro momentum remains strong, the market will keep in mind that the ECB is unlikely to tolerate a further strong euro appreciation in the short term, which should put a soft cap on the pair ahead of the October meeting. We maintain our view that any dip should be shallow and short-lived.

Fixed income: support to the carry-friendly environment

The fixed income market and particularly the periphery reacted positively to the message from Draghi that a decision will be taken at the October meeting and not least that the euro is being monitored closely. The more the euro appreciates the more likely it becomes that the ECB will extend its QE programme and postpone rate hikes. Hence, the key variable for the fixed income market at the moment is the euro. We have seen 10Y German yields a few basis points lower and the curve steepened slightly as 2Y bond yields fell a bit less after the press briefing. The focus on the euro and the smaller concern about an abrupt end to QE pushed investors towards periphery bond markets that performed strongly after the press briefing. 10Y Spanish and Italian yields outperformed Germany by some 4bp this afternoon. We agree with the positive reaction in periphery and core FI markets. In our view Draghi today supported the carry-friendly environment we have seen over the summer. We are long 5Y Spain and 5Y Italy versus swaps in our Government Bond Weekly trading portfolio and we are very comfortable with these trades in light of the message from Draghi today

STOCKS

Dow (21784.78, -0.10%) closed just above support levels on the 3-day candle chart. A rise from here is necessary to keep the immediate uptrend intact; else a fall towards 21600 or lower is possible in the next couple of weeks.

Dax (12296.63, +0.67%) has moved up sharply to close at higher levels after the ECB meeting yesterday. A rise in the coming sessions is possible towards 12400-12500.

Nikkei (19337.04, -0.31%) looks weak. While the Dollar Yen is headed to lower levels, Nikkei could remain weak too and target levels near 19200-19200 in the near term.

Shanghai (3368.90, +0.10%) looks bullish while above 3350. It could possibly consolidate sideways for some more sessions before resuming the uptrend.

Nifty (9929.90, +0.14%) is expected to remain bullish while above 9750 as we have been mentioning for quite some time now. The index could possibly spend some time within 9750-10000 levels before deciding on further direction. The index is likely to remain stable today.

COMMODITIES

Gold (1356) moved higher and met our target of 1350 as Dollar index in trading below 91.50 levels. Immediate trading range for Gold is now 1335-1371 with an interim support at 1345. Gold is highly overbought thus we might see weekend profit booking at current levels . Similarly Silver (18.23) has also moved higher but still within the range of 16.90-18.25. Please maintain caution at higher levels due to overbought nature. In the medium term,both Gold and Silver are out of their short term bearish channel but the supports of 1288 and 16.80-90 should hold to keep the bullish momentum intact.

Copper (3.15) is trading within the narrow range of 3.12-3.17. Only above 3.17 , higher levels of 3.26 can come into consideration. The only concern in the short term overbought condition which might cause short term profit booking at current levels.

Brent (54.60) is trading within the bullish channel of 50-55.60 since June 17 and we will remain bullish while it is trading above 50 regions on a weekly closing basis. WTI (49.22) has also moved higher but still within the bearish channel of 45-50 since march 17. Technically there are no sign of weakness so for but we need to be little cautious as a price correction for a 4.6MB surplus in U.S. weekly crude inventory is overdue.

FOREX

ECB kept rates unchanged yesterday. The next meeting in October would be important as it is now a 'confirmed date' when the ECB will seriously debate when to start its 'taper' from. Euro (1.2055) shot up to 1.20 soon after the ECB yesterday and is trading above 1.20. While the longer term target of 1.2150-1.2250 remains on the cards for the medium term, we could expect Euro to end the week on a stronger note. The ECB has raised its GDP growth forecasts but slightly powered its inflation forecast.

Dollar Index (91.347) has come down below our initial target of 92. Important support is visible near 90.70-91.00 region and while that holds a bounce back towards 92-93 is possible in the next couple of weeks. For now a test of 90.70 is possible on the downside.

Dollar-Yen (108.125) is trading near crucial support zone of 108.00-108.13, responding to the Euro strength and while that holds, we could see a bounce back from current levels (last seen in April). In case we see a weekly close at levels below 108, the direction could tilt on the downside for the near term.

Euro-Yen (130.53) is holding above immediate support levels just above 129 and seems to be potentially bullish for the coming sessions. There is a fair scope of a rise towards 131-132 in the near term.

The Pound (1.3128) has been rising strongly since the last 2-weeks and could target 1.3270, the high seen on 3rd August’17. Near term looks bullish.

Sharp rise in Aussie (0.8098) is seen this week. A rise towards 0.82 is possible while support at 0.7950 holds.

Dollar-Rupee (64.04) is expected to trade within 64.15-63.95 today. The strength in Euro may lead to some Rupee strength today.

INTEREST RATES

The benchmark US 10Yr yield (2.04%) has dipped again. It could possibly touch 1.97 regions but that will be a highly oversold territory , thus we are not expecting further downside beyond 1.97 regions.

EUR/USD moved higher as the The German-US 2 Yr Spread (-2.05%) and the German-US 10Yr Spread (1.76%) has been rebound. Otherwise there were no such stimulus for Eur in the yesterday's ECB meet.

Japan 10Yr yield (0.02%) moved higher while the 30Yr (0.82%) and the 5Yr (-0.14%) are almost stable at the time of this writing. No directional clarity so far but definitively yields are consolidating at these levels.

The UK 5Yr and 30Yr Gilt Yields (5Yr 0.43% and 20Yr 1.57%) had moved lower towards their respective supports. The UK 10Yr (1.03%) looks stable, might retest its immediate resistance of 1.07-08% region.

NZD/USD rallied after the retest of the upside line of the Falling Wedge pattern and now reached the up sloping red line. Has dropped below the 50% retracement level, but the sellers weren't able to keep it there.

I've said in the previous reports that a minor consolidation here will send it towards the third warning line (WL3).

USD/JPY moves in range on the Daily chart, but a breakdown seems imminent. Price is trading in the red and dropped below the 108.12 major static support, a valid breakdown is somehow expected. Technically, it could drop further after the retest of the warning line (wl1), but until the rate closes below the 108.12 level, nothing is certain.

Oil price rallies and resumes the upside momentum also because the USD/CAD has touched fresh new lows on Thursday. Brent managed to climb above the 54.50 psychological level and is targeting new highs if will have enough energy to stabilize somewhere above this level

Price increased sharply also because the USD is weakened by the United States data, the greenback has taken another hit from the Unemployment Claims today, which have reached the highest level since March 5, 2015. The Initial Claims were reported at 298k jobs in the previous week, much higher versus the 245K estimate.

The Brent Oil stays higher even if the United States Crude Oil Inventories have increased more than expected in the previous week. The Crude Levels were reported at 4.6 million barrels, beating the 4.1M estimate.

You can see that the Brent Oil has managed to jump above the warning line (WL1) of the descending pitchfork and tries also to close above the 54.56 previous high. The breakout needs confirmation, so only a retest of the warning line (WL1) will confirm a further increase towards the $57 per barrel. Could come to retest also the 61.6% retracement level before will climb towards fresh new highs. Personally, I would like to see a minor consolidation before will increase further, needs to capture more directional energy to be able to approach and reach the median line (ML) of the major ascending pitchfork.

EURUSD - With the pair seen rallying strongly on Thursday, further bullishness is likely in the days ahead. Resistance comes in at 1.2069 level with a cut through here opening the door for more upside towards the 1.2100 level. Further up, resistance lies at the 1.2150 level where a break will expose the 1.2200 level. Its daily RSI is bullish and pointing higher suggesting further upside pressure. Conversely, support lies at the 1.2000 level where a violation will aim at the 1.1950 level. A break of here will aim at the 1.1900 level. Below here will open the door for more weakness towards the 1.1850. All in all, EURUSD faces further upside towards its key resistance.

Draghi the Master of Central Bank Voodoo

The master of central bank voodoo was at it again. Mario Draghi did cast a pale shadow over the euro strength, but the level of intervention rhetoric was so mild it did not distract the Euro bulls from adding on more Euro risk.

The EUR bulls are anticipating bullish near term fundamentals whilst Draghi smoothed the path to reducing and then ending the asset purchase program.

However, the labouring USD played a significant role in last nights EURO rally after a higher than expected U.S. initial jobless claims sent the greenback tumbling into the ECB meeting.

As for the USD part of the market geometry, traders are concerned that the impact from Hurricane Harvey are causing data distortions and these data skews may cause the Fed to sit on their hands for the rest of 2017

Investors have renewed their interest on the US political overhang as the political landscape continues to weigh heavily on the dollar. Specifically, the long and winding and no less bumpy road to tax reform look more of a pipe dream now than ever. Also, uncertainty reigns over Yellen’s replacement which is adding another unwanted layer of confusion to an already politically muddled landscape.

The Fed’s Dudley has just finished delivering an economic outlook speech to the Money Marketeers of New York University. His comments are very much in line with his previous statements where he has argued for further tightening in addition to shrinking the balance sheet. Not much reaction off the banter bat as traders will be looking to trim not add risk heading into the weekend, especially long dollar risk.

EURO

US data didn’t do the wobbly dollar any favours overnight, and with no real push back on Euro strength from Super Mario, the overnight session has been more or less a running of the EURO bulls. Look for the weaker dollar narrative to lead the way for a possible move higher on the EUR

Japanese Yen

While there was little cause to be long USDJPY above 109 yesterday, we could be in for some absorbing price action soon. Besides the usual position squaring effect into weeks end, lots of chatter on the street about the fact central bank pricing can’t get any more dovish. The 108.00 level may shape up to be a considerable battle ground between the dollar bulls and the short term risk aversion flows. But the long trade is fraught with danger as Saturday feared missile launch could become a reality leading to a very messy Monday open

Australian Dollar

The main reason the Aussie is trending towards a two year high is the market continues to reprice the dovish Fed narrative with the December rate hike probabilities running near 30 % down from 37% yesterday. Weaker Dollar and increasing investor risk appetite screams long Aussie

The Canadian dollar continues to gain after the surprise announcement by the Bank of Canada (BoC) of raising its benchmark rate by 25 basis points. Canadian economic indicators were lower than expected with building permits falling 3.5 percent and the Ivey purchasing managers index (PMI) falling to 56.3 but with a positive indicator being employment continues to rise in what could be a preview of Friday’s Canadian jobs report.

The CAD advanced thanks to two factors. The aftermath of the BoC decision still lingers in the market. While not a total shock as a rate hike was expected, markets were anticipating a later date most likely the October meeting for the announcement. A Reuters poll shows that economists are seeing no more rates hikes in 2017 from Governor Poloz unless the strong pace of growth continues.

The other factor was the weakness of the USD. The dollar struggled on Thursday across the board as natural disasters and political drama sapped any traction that the currency could muster. Inflation data next week will guide markets as the probability of a third rate hike by the Fed this year looks even more remote.

The USD/CAD lost 0.678 percent in the last 24 hours. The currency pair is trading at 1.2141 after the USD underperformed on Thursday while the loonie is still riding high in the aftermath of the surprise rate hike from the Bank of Canada (BoC). The Canadian benchmark rate is now 1 percent, and the interest rate raise was not a total surprise, it was anticipated to be in October, but the BoC followed through on the hawkish rhetoric it launched in June amongst other central banks only to see them backtrack.

Canadian employment data will close a strong week for the CAD. The economic consensus is for another gain of 15,000 jobs in August, keeping the unemployment rate at 6.3 percent.

US unemployment claims climbed to a two-year high due to the impact of Hurricane Harvey. Initial jobless claims rose to 298,000, beating estimates of 242,000. Employment has been the strongest pillar in the US economic recovery, but lately the lack of wage growth has made it hard for the U.S. Federal Reserve to keep raising interest rates this year. The Fed will meet on September 19 and 20, and will publish its economic projections. The US central bank is expected to announce its balance sheet reduction timeline at the September meeting with Fed Chair Janet Yellen giving a press conference to give further details.

Gold rose 0.89 percent on Thursday. The yellow metal is trading at $1,345.49 after the European Central Bank (ECB) made no change to its rate or quantitative easing program despite improving economic conditions. The USD has not shaken off the political risks at home and abroad and with the effect of Hurricane Harvey adding to number of unemployment claims with two other storms in the horizon the precious metal has risen on dollar weakness.

Tensions involving North Korea are keeping the safe haven commodity bid as China is looking for the UN to take more actions in the matter. The lack of traction of US inflation has put question marks on the third rate hike from the Fed this year. Next week’s US inflation data and the upcoming September monetary policy meeting could stop the advance of gold, but only if there are any signs of higher inflation that could keep the hopes of a December rate hike on the table.

The EUR/USD gained 0.668 percent on Thursday. The single currency is trading at 1.1997 after the European Central Bank (ECB) punted its decision to start the QE tapering until the October monetary policy meeting. While not exactly what the market was expecting, now there is a firm date that ECB President Mario Draghi has committed the central bank to. Growth has picked up in Europe, and with it the EUR has soared yet inflation remains tame raising concerns about how much stimulus to taper and how quickly. German policy makers want as much as possible in the short term, but they are not the sole decision makers which is why the decision has taken so long and will probably be gradual.

US political turmoil has also boosted the single currency as the dollar has lost some footing as a safe haven with self induced wounds. A republican president with majority in the house and senate was never anticipated to have this much trouble passing legislation and yet Donald Trump has proven to be a unique leader.

Market events to watch this week:

Friday, September 8
4:30 am GBP Manufacturing Production m/m
8:30 am CAD Employment Change