European Central Bank hot air fails to push euro lower, global equities trade lower, ASX futures flat

Last night the European Central Bank held its last policy meeting of the 2014. The Bank's president, Mario Draghi, vented his frustration about Europe's dire inflationary environment and lack of growth; however, he did not give traders a clear indication of an imminent acceleration and broadening of the ECB's asset purchase program and, as a result, stocks quickly moved lower and the EURUSD currency pair failed to drop, following the announcement. But here's the thing - there are only two countries in the Euro area that have annualised inflation rates of more than 1% - Austria and Romania. This is no longer a battle between the haves and the have-nots in regard to inflation and growth, the Euro area is better structured now for a unanimous decision on big hairy monetary stimulus than it has ever been. Greece, Bulgaria, Spain, Hungary and Poland are already experiencing deflation rates of between -1.8% and -0.2%, and the longer the region is left without adequate and appropriate stimulus, the more countries will fall into deflation, with the flow on effect of increasing purchasing power discouraging investment and amplifying the burden of debt. Deflation is a central bank's nightmare at the best of times, especially when it doesn't have a single cooperative government to support it with fiscal policy; but when growth is speeding toward zero as it is, the situation becomes all the more desperate.

But soon after the post-policy-meeting sell-off in equity markets (see today's first chart of Germany's DAX, Italy's MIB and France's CAC), a story emerged on Bloomberg that almost sounded like a well-positioned leak from the ECB to pump the markets back up. Maybe Draghi was hoping investors would read the subtext of his announcement a little more optimistically, but a story broke at 4:30am Sydney time (see the pop higher in the first chart) that quotes "central-bank officials" as suggesting that an asset purchase measure is in the wings that would see every purchasable asset class targeted except for equities and gold. I suspect this story will gain a bit more traction this afternoon when European markets open - let's see if we get a bounce on the back of these pointy leaks.

Today's second chart would suggest that FX traders are taking a wait-and-see approach before pushing the EURUSD currency pair any lower, but an absence of policy announcements and policy-specific court decisions could hinder the ability for this pair to pick a direction until mid-January. Eurozone GDP will be out at 9pm tonight Sydney time, but the world knows that Europe is in horrible shape - it really wants to know what the ECB is going to do about it. I'm not so sure continuing poor economic data is going to add this theme of ECB desperation - there's enough fuel on that fire already.

Today's last chart shows the AUDUSD currency pair making some fresh long-term lows overnight. I've taken this chart back to the 2010 period of decline that saw it's last bounce occur, which came off US$0.81 lows. Tonight's US employment report is expected to extend the current rate of 5.8% unemployment and offer a similar addition to non-farm payrolls, which came in at 214,000 new jobs for October and is expected to add 230,000 jobs for November. A more positive figure than this might strengthen the US dollar, leading traders to believe that the 2015 interest rate rise is still a high probability, while a big miss would send the opposite signal. This will likely lead the AUDUSD direction in the short term, with Australia's employment report not due out until next Thursday.

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: AU AiG performance of construction index at 9:30am, UK inflation expectation survey at 8:30pm, Eurozone GDP at 9pm, Canadian employment report at 12:30am, US employment report at 12:30am, all Sydney time.

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