It was a crazy and, I suppose, a great day for bulls as both European and China central banks made their moves to boost the economy and prevent deflation. Stock markets, commodity currencies and precious metals surged on Friday.
Draghi pledged to provide more measures of stimulus to revive the economy. This dovish statement shows Draghi trying to convince the investors, in the hopes of raising inflation expectations two weeks before the next policy meeting.
The Euro fell by over 100 pips against the dollar after the speech. It broke the upward consolidation pattern and is now close to a month low of 1.2360. After the breakthrough on Friday, the Euro Dollar may refresh its lows soon and head to 1.2050-1.21.
If we can describe the speech of Draghi as predictable, then the Chinese central bank would be called the surprise of the market. China had to cut its interest rates for the first time since 2012 after its selective monetary easing did not stop the economic growth fall to slowest rate since 1990. The recent data has shown China as confronting weaker growth and subdued inflation, making authorities realising a need for a full-scale lax policy to reboot the economy. Although the central bank said the rate cut is a neutral operation and means no change in policy direction, the market expects further cuts and easing may come out step-by-step.
The Aussie Dollar once surged to 0.8720 with the interest cut seen as the stimulus that may relieve the dampened Australian mining industry. It finally closed at 0.8670. The trading strategy of the Aussie Dollar may need to be changed in the short term as a reversal has occurred. The upper resistance of 0.88 is the next target.
Gold prices rose to $1207 per ounce after the China rate cut, but traders are now hesitating about the short term direction. The FOMC minutes confirmed the US is heading to raise its interest rate, while other major economies are pouring more funds into the market. $1220 may be the next resistance for gold.
Most Asian stock markets closed high. The Nikkei Stock Average was up 0.33%. The Shanghai Composite surged 1.39% to 2487. ASX 200 lost 0.22% to 5304. The European stock markets were inspired by the central banks. The UK FTSE was up 1.08%, the German DAX surged 2.62% and the French CAC Index gained 2.67%. The US market refreshed new highs again. The S&P 500 gained 0.52% to 2063. The Dow rose 0.51% to 17810, and the Nasdaq Composite Index rose 0.24% to 4713.
Not much on the data front today. Only German Ifo Business Climate released at 20:00 AEDST may catch some eyes.
Have a great trading day!
Anthony
NB: Please note all references to rates above are approximate
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