The US dollar is broadly sold-off against the majority of the G10 currencies, except the Antipodeans. The US yield curve flattens as the ‘dovish hike’ in December is being priced in with a strong conviction; the 2-10 year spread is at its lowest since April.
Earlier in the session, the euro-dollar was better bid on suspicion that the ECB President Draghi may not satisfy the very hawkish market expectations regarding the Eurozone’s monetary policy. Yet Draghi’s early words successfully delivered the dose of dovishness that the euro-bears were craving for.
Mr. Draghi charmingly blinked saying that the ECB will do ‘what it must’ to raise the inflation quickly. Implicitly, Draghi hinted that the expansion in the bond purchasing program is certainly around the corner by the end of the year. There may even be deeper negative rates under the Christmas tree this year.
His words curbed the early appetite in the euro-complex. German 2-year bund yield dropped to a record low. The widening divergence between the Fed and the ECB’s monetary policy outlooks paves the euro’s path to the south by the end of the year. The euro-bears are not ready to hibernate this December.
The upside attempts in the euro are expected to remain fragile against both the US dollar and the pound. Only surpassing 1.0790 (Fib 38.2% on Oct 30– Nov 18 decline), the EURUSD will technically step in bullish consolidation zone and could push for further gains to 1.0860 / 1.0960 (21dma / minor Fib 23.6% on Dec’14-Mar-Apr sell-off). The mid-term direction remains bearish with unchanged target at 1.0500/1.0450 zone. Against the pound, the 70 cent shelters a large volume of vanilla put expiries.