Draghi set to unleash more firepower

Daily Update

Yesterday’s Market

• AUD Gross Domestic Product
• GBP NIESR GDP Estimate
• CAD BOC Interest rate decision and Rate statement

Yesterday Explained

Australian Gross Domestic Product reports for its 3rd quarter failed to meet it’s expected level thus it made Australian Dollar weak against its rival currencies. Australian business indicators were mixed in Quarter 3, with profits growing at a slower-than expected rate, and inventories and wages growing strongly.

The day closed with reports from UK and Canada. UK released its NIESR GDP Estimate which met the expectations, however it failed to provide any positive growth to GBP. The day ended with Interest rate decision and rate statement from Bank of Canada, where it kept the Interest rate unchanged at 0.5% as expected. Following this, CAD rose modestly in the market following the statement and then stabilized, consolidating gains.

Today’s Market

• EUR ECB Interest Rate decision and Deposit rate decision
• EUR ECB Monetary policy statement and Press Conference

Today’s Focus

Today is the biggest day of the week in terms of major events that could influence the FOREX market. The ECB will meet on today and it could decide to announce an extension to its QE program beyond March of next year.  Given the rise in certain peripheral yields lately as well as inflation remaining well-contained (it rose to only 0.6% year-on-year during November), an extension of QE would probably be the most prudent decision for the European Central Bank to make.

The European Central Bank, which has announced a stimulus program back in March 2015 and running to March 2017, or "as long as it's needed," is expected to announce an extension, of at least six months, but to keep the amount of bonds' purchases and rates on  hold. Anything less than that could be read by the market that the ECB is preparing to tighten economic conditions, and will result in the EUR rallying sharply against its major rivals.

As there will be a number of key elections in the Eurozone next year such as France, the Netherlands and Germany, signs that populist forces are gaining the upper hand could spook investors.  This could add to the problems of the European Central Bank, which is using its asset purchase program to lower the funding costs of governments around the Eurozone.