Dollar surged overnight and remains firm in Asian session today. ECB's dovish tapering is seen as a key factor driving the greenback higher. But more importantly, another step was taken forward as House passed Senate's versions of the budget bill. That procedural path is now cleared to move on to US President Donald Trump's tax cuts. Staying in the currency markets, commodity currencies remain the weakest ones for the week. Aussie's selloff accelerated after CPI miss earlier this week and weighed further down by PPI miss today. Canadian Dollar remains weak as post cautious BoC statement selloff continues. Euro, while weak, is trading mixed only.
Dollar index confirms reversal
Dollar index's strong break of 94.14 key resistance finally confirms medium term reversal. That is the pull back from 2016 high at 103.82 should have completed at 91.01, on bullish convergence condition in daily MACD. That also came after drawing support from 91.91/3 long term cluster support (38.2% retracement of 72.69, 2011 low, to 103.82, 2016 high) at 91.93. Near term outlook will now remain bullish as long as 93.47 support holds. Further rise should be seen to 38.2% retracement of 103.82 to 91.01 at 95.90 at least. There is prospect of hitting 61.8% retracement at 98.92 and above. But we'll monitor the upside momentum to assess the chance later.
ECB's dovish Tapering
ECB announced that it would begin in January 2018 to reduce the asset purchase size to 30 B euro per month. The program would last until September, "or beyond, if necessary". It added that stimulus measures would be implemented "in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim". In order not to let the market interpret the move as a trim in stimulus, President Mario Draghi called it "recalibration".
The accompanying statement affirmed that "if the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the APP in terms of size and/or duration". Moreover, the ECB announced that it would reinvest the principal payments from maturing securities "for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary". It would also continue to provide liquidity via fixed rate full allotment refi operations until at least the end of 2019.