Why did the already expected QE still bring surprises?

January 23, 2015

We have been expecting the result of this ECB decision for quite some time now. Many see this announced asset purchasing program as a chance to temporarily allow market participants to have some faith in that the ECB is serious on fighting deflation. The release though subdued the Euro down to a refreshed low below 1.1350 and pushed up the global stock markets. In fact, the Euro hit a 11 year low.

The total amount of the program is no less than 1.1 trillion Euro – 60 billion Euro per month, starting in March and until at least the end of September, 2016. Mr. Draghi emphasises that the program is open-ended like the QE3 of the US and will continue until the inflation level of Eurozone returns to 2%. As aforementioned, this QE was expected but the amount was actually twice as much as any prediction had set out. Traders now are mostly satisfied.

EURUSD 230115  | Vantage FX

The falling Euro also helped the USD rise against other majors. A breakout just happened as I was writing this report. The Aussie Dollar slumped below its former mouth low of 0.8030 – finishing the over-a-month consolidation. The 0.8000 integer level is being tested and may not support the currency for long. The Australian Dollar still is the strongest currency among other commodity pairs. After NZDUSD broke the bottom of its three-month consolidation and the Bank of Canada just cut its interest rate, the Aussie Dollar won’t be able to defy gravity on its own. The next target may be 0.78 and 0.75.

AUDUSD 230115 | Vantage FX

Gold prices surged to $1304 refreshing recent highs as the newly announced QE provided enough funds for the market. In the weekly chart, we can see a downward trendline connecting the highs of 2013 and 2014. The next target of gold may be this trendline and the price level is around $1325.

XAUUSD 230115 | Vantage FX

Stock markets were in a sea of green. The Shanghai Composite rose 0.59% to 3343. ASX 200 bounced 0.49% to 5420. The Nikkei Stock Average gained 0.28%. In European markets, the UK FTSE was up 1.02%, the German DAX gained 1.32% and the French CAC Index rose 1.52%. The US market closed inspired by QE as well. The S&P 500 closed 1.53% higher to 2063. The Dow gained 1.48% to 17813, and the Nasdaq Composite Index surged 1.78% to 4750.

On the data front, China HSBC Flash Manufacturing PMI will be released at 12:45 pm AEDST. PMIs of Euro area will also be out in this afternoon. UK retail sales will be at 8:30 AEDST and Canada CPI and retail sales will be at midnight.

Have a great trading day!
Anthony


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