With an eventful week now at a close, three key events have stolen the limelight, with the ECB in focus on Thursday, while Friday saw US nonfarm payroll report and the much anticipated biannual OPEC meeting. In terms of the ECB rate decision, Draghi failed to provide the market with the dovish policies that many had been pricing in. The ECB cut their deposit rate and extended the length of QE, while also adjusting the make-up to allow regional and local bonds to be included in the program, however crucially the ECB held off on expanding the monthly size of the program, with some participants also anticipating a deeper than 10bps cut to the deposit rate or a cut to the other key rates from the central bank.
As a consequence, on the back of the rate decision and press conference, EUR/USD soared after touching intra month lows in the build up and falling below the 1.0550 level to then break above 1.0900 and sustaining the strength through to the end of the week.
Friday was equally eventful with the aforementioned events in focus. Many analysts had noted before the US nonfarm payroll report that it would take a significantly weak reading to push the Fed off their current course of looking to raise rates later this month. However, given the significance of the release every month, the strong release (US Change in Nonfarm Payrolls M/M 211K vs. Exp. 200K) did see initial strength go through the USD, however with the move was shrugged off later in the session given that the longer term impact of the release is touted as being relatively muted.
The final crucial event of the week came in the form of the OPEC meeting, with the cartel keeping participants waiting for the official release of their announcement. Market participants failed to wait for the official announcement and instead focussed on source reports ahead of the release that the group were to expand their current ceiling from 30mln bpd to 31.5mln bpd. While this ceiling is still lower than their current production, which is seen at around 32mln bpd, the crucial takeaway from markets is that this announcement is not a cut in production and as such immediate weakness was seen in the energy complex, which filtered through to softness in commodity currencies, with RUB and CAD the main sufferers. However, the interpretation that OPEC will not cut led to suggestions that this would weigh on inflation and therefore saw a bid go through precious metals, most notable gold, to see the likes of AUD strengthen on the back of the news.
Looking ahead, while next week may not be quite as busy as this week there is still plenty to focus on, with rate decisions expected from the SNB, RBNZ and BoE, with the RBNZ expected by surveyed analysts to lower their key rate, while some analysts anticipate the SNB also lowering rates, although pressure has been eased on them given the less dovish than expected ECB. Also of note, out of the US next week there is the release of the likes of retail sales and JOLTS, which will remain in focus as we get closer and closer to the all-important December Fed rate decision.