US GDP DATA, WHAT HAPPENED WITH THE ECB, EURUSD OUTLOOK TALKING POINTS

APAC equities, AUD NZD in the red after amid tech regulatory crackdown in Australia

ECB rate decision, commentary caused the Euro to oscillate before settling unchanged

US Dollar may gain if US GDP data fuels risk aversion or cools Fed rate cut forecasts

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APAC RECAP

Early into Asia Pacific trading hours, regional equities were broadly swimming in the red with South Korea’s Kospi Index and Taiwan’s equity TAIEX benchmark gapping lower. The AUD and NZD were also suffering from risk aversion supposedly caused by concerns about Facebook and Google facing regulatory crackdowns in Australia.

WHAT HAPPENED WITH THE ECB?

The Euro turned volatile but failed to find directional conviction following the ECB rate decision and commentary by ECB President Mario Draghi. While the central bank highlighted that the outlook is getting “worse and worse” – particularly in manufacturing data – there were also internal disagreements over the degree of stimulus needed. The ECB did allude to examining the possibility of “new asset buying” i.e. QE.

Draghi stated that recessionary risks remain “pretty low”, though more data has been showing that equity markets may be due for a correction. Overnight index swaps are pricing in an 85% probability of a cut by the September meeting. Christine Lagarde will be taking over Draghi’s post at the end of October and is expected to continue along the same lines as her predecessor in an effort to boost regional activity and apathetic CPI.

US GDP DATA: HOW WILL US DOLLAR RESPOND?

If US GDP data surprises lower or higher, the US Dollar may rise. If the report shows growth beating forecasts, USD may experience greater capital inflow as markets cool their dovish expectations. When the IMF published its updated world economic outlook – which carried gloomy undertones – overnight index swaps for Fed rate cut bets edged modestly higher – as did the US Dollar. We may see a similar reaction in financial markets if US GDP data undershoots forecasts and fuels risk aversion.

Read my IMF update to get a better understanding of US Dollar dynamics!

CHART OF THE DAY: SOUTH KOREA KOSPI, TAWAIN TAIEX INDICES GAP LOWER INTO FRIDAY’S TRADING SESSION

FX TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter