Market volatility increased in the second half of the day on Wednesday but major currency pairs closed not too far from their opening levels. Ahead of key events, the risk-averse market environment helps the dollar find demand. Meanwhile, short-term US T-bond yields continue to push higher while the 10-year reference is edging lower, causing a flattening yield curve and supporting the greenback. The European Central Bank (ECB) will announce its policy decisions at 1145 GMT and President Christine Lagarde will deliver her remarks in a press conference at 1230 GMT. The US Bureau of Economic Analysis will release its first estimate of the annualized GDP growth for Q3. September Pending Home Sales and the weekly Initial Jobless Claims will be featured in the US economic docket as well.
Macroeconomic events: On Wednesday, the Bank of Canada (BoC) left its policy rate unchanged as expected but decided to end its quantitative easing program in a surprise move. Moreover, the BoC signalled that rate hikes may be coming sooner than expected. The BoC’s hawkish shift triggered a sharp upsurge in the short-term Canadian rates with the one-year bond yield rising more than 20 basis points. More importantly, this development is seen as a sign that major central banks could pull support sooner than expected in order to control inflation expectations.
During the Asian trading hours, the Bank of Japan left its policy settings unchanged but lowered the 2021/22 growth forecast to 3.4% from 3.8%. “Japan’s consumer inflation is likely to gradually accelerate,” the BoJ reiterated. USD/JPY largely ignored the BoJ’s inaction and continues to trade in a tight range below 114.00.
The data from the US showed on Wednesday that Durable Goods Orders contracted by 0.4% in September, compared to market expectation for a decline of 1.1%. The international trade deficit expanded to $96.3 billion from $89.4 billion. The US Dollar Index (DXY) finished the second straight day little changed below 94.00.
EUR/USD continues to tread water around 1.1600 as investors refrain from committing to large positions ahead of the ECB meeting.
GBP/USD is moving sideways around mid-13700s as markets await the next catalyst. A strong reaction in EUR/GBP pair to the ECB could impact GBP/USD’s movements.
Gold is testing the $1,800 handle for the second time this week but XAU/USD could have a difficult time making a sustained move unless the US GDP data triggers a USD selloff.
Cryptocurrencies: Bitcoin fell below $60,000 for the first time in nearly two weeks and the correction could deepen in case buyers fail to lift the price above that level. Ethereum seems to be barely holding above $4,000 after losing nearly 5% on Wednesday.