Pre-Market: ECB to End QE and Keep Rates Unchanged for a Year: Stocks Rally, Euro Tanks

In a widely expected move, the European Central Bank announced the end of its bond purchasing program today. The central bank will start tapering in September and cease purchases by the end of the year. The bank also released a roadmap for interest rates, with rates remaining unchanged until next summer, lagging the Federal Reserve by a mile in the cycle.

EUR/USD, 4-Hour Chart Analysis

All in all, the announcement is more dovish than expected, even as the consensus was that the program will reduced first in October, as without the rate hikes, the US-European rate differential will be huge by next summer. The Euro fell almost 1% against the Dollar, to a one week low in the wake of the decision, while European equities jumped higher, and bond yields fell across the board.

Stocks, Commodities Among Beneficiaries, but EM Stress to Persist

DAX Index, 4-Hour Chart Analysis

The move could help risk assets, at least in the short run, as the global tightening cycle will be slower than expected, but currencies will likely see more action. Emerging market currencies could see a relief rally, but as Dollar funding is still much more crucial, the pressure on the vulnerable countries will only ease a bit thanks to today’s announcement.

Gold, 4-Hour Chart Analysis

Commodities could benefit from the dovish surprise, and crude oil and gold both ticked higher after a brief dip following the event. Gold is trading at a one-month high right now, leaving the vicinity of the $1300 after a long period.

All eyes will now be on the Dollar, as another strong leg higher in the reserve currency could curb the risk-positive effects of the ECB’s move, but in turn, could also lead to slower tightening by the Federal Reserve itself. Another effect will likely be easing of the recently strong divergence between US and European equities.

Featured image from Shutterstock

Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.