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ECB Meeting Preview & OPEC+ - DAILY MARKET UPDATE

Chart of the Day: USD/CNH (daily candlesticks)

•    Euro in best winning streak since Dec 2013
•    Dollar Index hits 11-week low
•    Oil higher as Russia & Saudi Arabia agree output cut extension
•    REMINDER: ECB Meeting Today

SUMMARY

With its 7th daily gain on the trot, the euro just had its best winning streak since December 2013. The euro-gains have been propelled by weakness in the US dollar. The Dollar Index (DXY) reached its lowest in 11-weeks even as US private jobs data came in well ahead of expectations. More daily gains on Wall Street came despite rising US political unrest over the George Floyd protests. The Dow Jones rose for a third day in a row and sets up a positive day in Asian equities. 

GURU WISDOM

There is a time to go long, a time to go short and a time to go fishing.” 
- Jesse Livermore (Inspiration for ‘Reminiscences of a Stock Operator’)

ECB Meeting Preview

The euro breakout continues to gather speed before the European Central Bank meeting today. Yesterday EUR/USD topped 1.12, EUR/JPY rose above 122 and EUR/CHF broke above 1.08 and its 200-day moving average. The logic behind the gains is that extra monetary stimulus is on the way and that will help bolster the Eurozone economy as well as minimise the risk of a breakup of the currency union.
While other central banks are pulling back from record levels of stimulus introduced in March, the ECB is seemingly doubling down on previous efforts. Markets are pricing in more stimulus because of recent comments from President Christine Lagarde that the “Economic contraction [in the Eurozone] is likely between medium and severe scenarios.” Interest rates are already sub-zero so the weapon of choice is the newly installed PEPP. An increase in the size of asset purchases under the program could balloon from the existing €750 billion by another €500 billion to total €1.25 trillion. 

OPEC+ Agree Output Cuts 

Brent crude oil ended higher on Wednesday, although just below $40 per barrel, the price landmark reached on Tuesday. The gains came after the two leading countries in the OPEC+ oil cartel – Saudi Arabia and Russia agreed in principal to extend the current 9.7 million barrel per day output cuts by another month. A ‘virtual’ OPEC+ meeting could still happen this week via web-conferencing instead of the pre-scheduled meeting planned for next Tuesday. 

The price of Brent crude has doubled since hitting a 21-year low of $16 per barrel in March and WTI crude has recovered from negative prices. The hope is that OPEC can constrain supply long enough until demand is back to a closer state of normal while China’s economy recovers and lockdown policies are lifted elsewhere. Demand would appear to be rebounding after the EIA reported a surprise fall in US crude inventories this week. 
 

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