ASIA MORNING CALL: The (dovish) package has been delivered, or has it?

*Markets whipsaw on Draghi's stimulus
*Trump responds to ECB
*Turkey cuts by 325bps 

USDTRY outperformed in a night focussed on ECB. Source: Thomson Reuters

A tale of two halves... 

Have you ever watched Remember the Titans? You know, the movie with a steep story arc that shows a high-school NFL team divided initially but able to climb its way to victory in the end, only for a much beloved character to die abruptly thereafter. Well - last night's reaction to the ECB announcement, if you weren't watching - drew parallels for me. The victory, where the EURUSD whipsawed in a purported "voyage and return" move that saw it fall -0.55% before edging back +0.65%, could turn out more like the tragedy, where Bertier dies and EURUSD continues its downward spiral. 

A recap of the main points of the dovish ECB package that came out was largely in line with our Ahead of September sneak peek
  • -10bps rate cut to -0.50% (in line)
  • Open-ended QE of EUR20bn/month across sovereign and corporate bond (longer but lower than expected, more dovish)
  • A generous tiering system of excess reserves which means banks will pay 0% interest on around 40% of excess reserves (more hawkish) 
  • Lower for longer guidance where rates remain at present or lower levels until inflation converges to or close to 2% (in line)
While some other important soundbites were released throughout the night: 
  • TLTRO maturities were pushed out from 2 to 3 years (good for lending)
  • GDP and CPI forecasts downgraded through to 2021 given "the prominence of downside risks"(more dovish) 
Overall, I think the ECB on balance has delivered on a significant long-term easing package that should see EURUSD retain bottom side pressure, though the midnight pull-back serves as an interesting point of discussion as to how dovish the package really is beneath the surface.

In a way, the generous two-tiered system of excess reserves announced, was a pseudo rate-hike for European banks, leading to the sharp pullback in EUR. It's supposedly going to allow banks to deposit 6x the level of required reserves with the ECB at 0%, quite substantial if you ask me. While Draghi also shared the monetary spotlight with that of future fiscal stimilus, describing fiscal policy to be an important tool going forward.

Across the board in Asia, cross-currency pairs mirrored the whipsaw. EURAUD tested 1.59, AUDUSD tested 0.69, NZDUSD came off 20pips - more than most after an initial rally, and USDJPY was led higher. 

Look to stay nimble as markets continue to digest yesterday's ECB announcement alongside other notable developments. 

Trump tweets and US CPI... 

Last night's cocktail of events wouldn't have been the same without Trump on the trigger and US CPI at 10.30pm AEST. 
US Core CPI read better than expected with m/m CPI for August printing 0.3% vs 0.2% forecast. This meant y/y Core CPI came out at 2.4% beating the 2.3% Reuters poll. At the time, markets didn't pay much attention to the release though you can be sure it'll get a closer look come The Fed's monthly meeting next Thursday with markets pricing in a 94% probability of a 25bps rate cut, despite the positive reading being hawkish for US rates.

Soundbites uttered by Trump and The Administration overnight:
  • "[The ECB] are depreciating the Euro against the VERY strong Dollar"..."And The Fed sits, and sits, and sits" (dovish implications for Fed)
  • "It is expected that China will be buying large amounts of agricultural products" (positive for trade, positive for Soybeans)
  • Reuters said an interim trade deal with China not ruled out yet
Saw read-through into increased US-EU trade tensions, more optimistic US-China trade talks and a divided Fed policy. US 10y yields rallied 10bps. USDCNY is lower -0.5%. Again, how meaningful these points are to a complete US-China trade deal remains to be seen with sensitive structural components of the deal still at large. 

TRY-ing to get better... 

With so much focus having been granted last night to the ECB, many would have forgotten to check in with the CBT, Central Bank of Turkey at 9pm AEST. 

USDTRY outperformed all G10 and EM majors last night selling off -1.2% after the CBT announced a 325bps cut. The cut beat market expectations of 300bps and was more dovish than expected.

Naturally, a dovish cut should drive a weaker USDTRY, however, with much focus put on CBT's slowing inflation (which stands at an incredibly high absolute level of 16.65%), there were many positives to taken from the release. 

USDTRY finished down -1.7% on the day and looks to test September lows at 5.6584. Below that, the 50D MA serves as the next support level.