Breaking News: The ECB made no changes to monetary policy or guidance in its decision and statement today. EUR is selling off as some traders had hoped the central bank would at least hint toward a resumption in tapering in future. It looks like details may have to wait to the December meeting. The single currency may remain active through President Draghi’s press conference in a half hour. Traders may key in on comments related to the outlook for inflation and GDP (which could be dampened by a higher currency) and any comments related to the value of the Euro (particularly if he tries to talk it down after the big rally of recent months). 

Coming off a wild Wednesday, the USD is under pressure today as traders take a dovish read on the day's big surprises.

The Bank of Canada joined the Fed on raising interest rates for a second time this year. CAD broke out on the news and continues to advance. In the US there were two surprises, FOMC vice chair Fischer announced he is leaving in October and that President Trump has reached a deal with the Democrats for Hurricane aid and to keep the government running to December 15, that continue to rock the dollar. 

These developments have changed expectations of Fed timing significantly as the window for action has shifted. Prior to yesterday, the looming budget battle had meant September was unlikely for a move while December was open. Now the prospect of a Christmas budget war and possible shutdown over the holidays takes December off the table but opens September back up. With Fischer leaving just before the October meeting and Chair Yellen’s future uncertain beyond the January meeting when her term ends, it looks like the Fed may start normalizing its balance sheet this month but another rate hike is unlikely until March of 2018 at the earliest. 

This means two rate hikes (as I called) rather than three (as FOMC members have been projecting) looks more likely for this year.  It looks like the prospect of a more dovish Fed in the near term (Fischer was the most neutral to hawkish of the Big Three at the Fed) is dragging on the Dollar. Longer term, this could change with several vacancies at the Fed waiting to be filled by President Trump.  

Stocks have been trading neutral to moderately higher this morning. The Dax is up 0.8% while the FTSE is up 0.4%. US index futures are flat. Gold is up 0.4% today with EUR, GBP, JPY and other major currencies also posting gains against the Dollar.  

Energy markets are mixed this morning between inventory reports. WTI is down 0.2%, pausing to digest two days of big gains. Gasoline has bounced back 0.9% following a tumble. API inventories showed a much more moderate increase in oil stockpiles and a smaller decline in gasoline inventories compared with the numbers expected for tomorrow’s DOE reports. Although the inventory numbers may be distorted for the next several weeks, significant surprises could still have a significant impact on trading.

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