FOREX: Euro at Risk on Expectations of Dovish Turn at ECB | Learn Forex | GoLearnForex.com

Talking Points

• Euro May Resume Decline as ECB Moves Away from Hawkish Posture
• BOE Rate Decision Likely Another Non-Event as Policy Remains on Hold
• S&P 500 Index Futures Accelerating Lower, Promising US Dollar Gains
• Australian Dollar Falls as Employment Unexpectedly Shrinks in August

Monetary policy announcements from the European Central Bank and the Bank of England are in focus in the European trading session. In the UK, another non-event is likely despite the dovish shift on the rate-setting MPC committee revealed in the minutes from last month’s sit-down. Another decision to keep rates and the size of asset purchases unchanged will likely mean policymakers shy away from issuing a statement yet again, leaving traders to await further guidance when minutes from this meeting cross the wires in two weeks.

Meanwhile, the ECB announcement carries significant market-moving potential. While the benchmark rate is expected to remain unchanged at 1.5 percent this time around, the dramatic deterioration in Euro Zone economic data coupled with deepening sovereign risk fears in August hint bank President Jean-Claude Trichet and company may signal a neutral shift in policy having embarked on a tightening campaign in April. Needless to say, such an outcome would weigh heavily on the Euro, confirming the recent unwinding of traders’ priced-in rate hike expectations for the year ahead.

On the sentiment front, S&P 500 stock index futures are gaining traction to the downside to hint risk aversion is set to return after a brief respite yesterday, promising to boost safe-haven demand and breathe new life into the US Dollar. The spotlight will turn on Federal Reserve President Ben Bernanke just after the closing bell on European bourses as he speaks about the outlook for the US economy, with traders keen to see if the dovish sentiments voiced by other bank officials yesterday are echoed by the one man who’s vote actually counts in setting monetary policy as QE3 speculation continues to build.

The US Dollar corrected broadly higher in overnight trade after slumping 0.7 percent in the 24 hours through the close of the North American trade to yield the largest daily loss in a week. The Australian Dollar bore the brunt of the greenback’s recovery after Augusts’ jobs report proved deeply disappointing, showing the economy unexpectedly shed 9,700 jobs while the unemployment rate rose to 5.3 percent, the highest in 10 months. The result marked the second consecutive month of losses for the labor market and sank the antipodean currency as traders trimmed RBA interest rate expectations.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

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