zerohedge.com / by Tyler Durden / Oct 20, 2016
As US traders went to bed last night, they kept one eye on what had become a traditional debate proxy, one also seen with the past two debates, namely the FX market and particularly moves for the Mexican Peso. The Peso was initially slightly weaker in the first half of the debate, but surprisingly strengthened shortly after the kneejerk drop, then faded again and at last check was precisely where it was heading into last night’s debate. The modest move suggests that there’s not been a great change in view following the debate. Futures likewise failed to repeat their exuberant response from previous debates, and the E-mini was just fractionally higher.
Some commentators disagreed: “The likelihood of Donald Trump becoming President has nose-dived recently to as low as a one in eight probability … (and) last night’s debate has not provided that game-changing moment,” said Lee Hardman, a currency strategist with Bank of Tokyo-Mitsubishi in London. “The reduction in the political risk premium has helped the U.S. dollar to strengthen broadly this month.” According to Reuters a win for Democrat Hillary Clinton next month is also seen as opening the way for a rise in interest rates which a number of U.S.Federal Reserve policymakers have all but promised for December.
So with the debate now out of the way, the focus for the rest of the day ahead will swiftly turn over to the ECB meeting outcome at 7.45am followed by Draghi’s press conference shortly after. As a reminder, most of Wall Street is not expecting any fireworks at the meeting. The central bank is seen leaving policy unchanged, but investors will be looking for any hints of changes to its 1.7 trillion-euro ($1.9 trillion) bond-buying program, particularly the rules governing what debt can be bought. That being said the vague speculation about the ECB wanting to rein in QE means that there will be some focus on the tone of the statement and of course any hints of tapering. On the other hand, the ECB will soon have to unveil the extension of the program set to expire in march 2017, and as DB points out this morning, the ECB needs to solve the eligibility conundrum so that’s another topic to look out for today.
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