Investors Eye ECB Meeting | Sterling Rally Fizzles Out | Gold Higher Ahead of Draghi's Decision

Posted by Naeem Aslam | 26/10/2017 05:20

The US earnings are pretty much dictating the market action on Wall Street
The chief focus for investors is the ECB meeting 
Sterling rally fizzles out
The precious metal is off from its two weeks

Investors are taking a cautious approach and taking clues from Wall Street. The US earnings are pretty much dictating the market action on Wall Street and the US equity market was dragged in the red due to the underwhelming earnings results. At the same time, the US tax situation isn’t becoming clear in fact there is more ambiguity on that due to the ongoing spat between president Trump and Republicans.
 
The chief focus for investors is going to remain towards the most important event of the day, the European Central Bank’s meeting. Tapering is very much given in today’s meeting, the primary interest amid investors would be how long the European central would be extending its current quantitative easing program. The extension of the current program would not only tell us the pace at which the bank would be reducing the QE program but most importantly it would also provide us an important clue about the ECB’s intention to start the process of normalising the interest rate. This is the key element that would drive the volatility in the Euro. Remember the governing council of the ECB has more doves than hawks, so a hawkish tone would easily be able to push the currency towards the level of 1.20 against the dollar.
 
Speaking of Sterling, the currency did find its mojo among investors on the back of more supporting economic data but the rally is fizzling out. The third quarter preliminary GDP q/q reading was much better than the forecast and this economic reading was primarily behind the current momentum. Investor’s expectations are literally cemented that the Bank of England would increase the interest rate hike on the back of the improving economic data. Shorter dated UK government bonds have seen their yields surging to the highest level not seen since Brexit. This shows that investors are highly reactive to economic data and the governor of the Bank of England has already made clear that as long as the economic data does not disappoints, a rate hike would be on the table.  The UK’s economy has shown more resilience than the expectation in the Brexit storm and this is despite the fact that we have seen the inflation data exerting more weight on consumers.
 
The precious metal is off from its two weeks low thanks to the uncertainty around the ECB meeting. The dollar index has also lost some of its momentum because we do not have any clear picture who will be leading the Fed when Janet Yellen’s term expire. Given the Trump’s fiscal agenda, it really is difficult to see a scenario under which the Chairperson of the Fed would have more hawkish stance.
 
Inventory data is maintaining the selling pressure on Crude. The US crude inventories number jumped higher and surprised investors and this particular element is influencing the price.
 

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