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EUR/USD Plunges as ECB Considers Changes to Current Stimulus Package

By:
James Hyerczyk
Updated: Nov 25, 2015, 17:11 UTC

The EUR/USD sold-off sharply on Wednesday after Reuters reported that European Central Bank policymakers were looking at widening the scope of their bond

EUR/USD Plunges as ECB Considers Changes to Current Stimulus Package

EURUSD
The EUR/USD sold-off sharply on Wednesday after Reuters reported that European Central Bank policymakers were looking at widening the scope of their bond buying or implementing a two-tier penalty charge on banks that leave cash with the ECB. Specifically, the central bank is considering purchasing regional bonds and even buying bundled loans with a risk of non-payment.

The ECB also created volatility when it gave advance warning that it will put its Asset Purchase Program on temporary hold on December 22, and will resume the quantitative easing program on January 4. Its buying will be front-loaded from November 27 to December 21 to take advantage of better market conditions, according to a statement posted online by the bank.

Also during today’s session, European Commission President Jean-Claude Juncker said the Euro Zone’s Schengen border-free system was under threat and warned that if it fails, the Euro could fall with it.

The GBP/USD traded slightly higher on Wednesday in reaction to comments from Chancellor George Osborne. The Chancellor announced that controversial changes to tax credits would be scrapped altogether. He also ruled out further cuts in police budgets in England and Wales. Mr. Osborne made the announcements as he delivered the Spending and Autumn Statement in the Commons.

Osborne also predicted that Britain’s economy would grow by 2.4 percent this year. Growth for the next two years were also revised up from the Budget forecast, to 2.4 percent in 2016 and 2.5 percent in 2017.

January crude oil prices were under pressure most of the session on fading geopolitical fears and continued concern over a global supply glut. Oil trimmed losses after the Energy Information Administration said U.S. crude oil inventories rose 961,000 barrels last week. Analyst and traders were looking for a 1.1 million barrel rise. The rise was also smaller than the 2.6 million barrel increase reported late Tuesday by the American Petroleum Institute.

February Comex Gold prices were mixed to lower, mostly in response to the price action by the U.S. Dollar. The dollar soared when the Euro plunged, but then settled into a range.

Beside the news about the Euro, the dollar reacted to U.S. economic data. October U.S. personal spending rose 0.1 percent, while personal income rose 0.4 percent. In the 12 months through October, the personal consumption expenditures (PCE) price index was up 0.2 percent after a similar rise in September.

The durable goods headline number was higher than expected at 3.0 percent in October. Weekly jobless claims fell more than expected to 260,000. Weekly mortgage applications fell 3.2 percent while the FHFA home price index showed a 0.8 percent rise in September.

October new home sales showed a gain of 10.7 percent. Finally, the University of Michigan’s final read on November consumer sentiment came in at 91.3, up slightly from October’s final read of 90.0. 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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