ECB Will Continue to Provide Liquidity as Growth Risks Increase

ECB's Gonzalez-Paramo said bank's role as liquidity provider is only temporary, "until the markets resume functioning normally". He added that the bank is "not meant to substitute to markets and to massively provide liquidity over the longer term". Separately the executive board member said the July hike has been vindicated by facts and gave the ECB room to cut in October. He also said that the economic recovery will be a long process and that downside risks to growth have increased. Nothing really new in the comments that would change the prospect for a rate cut next week.

Meanwhile, Euro-Dollar (EURUSD) consolidated around 1.2700 after it recorded Asian highs of 1.2842. Ahead of the European open an Eastern European name was a good seller around the 1.2800 area, which left the pair on a heavier footing, but demand for EUR-JPY and EUR-CHF on dips is underpinning in to levels underneath 1.2700. The Wall Street surge and subsequent gains in the Nikkei has given a boost to risk appetite. There evidence yesterday of pre-FOMC positioning, with the market optimistic that the Fed will delivery another policy injection to the economy. Also aiding the equity market rally is talk of pension fund related demand, which has loosened up some of the low risk safe haven FX strategies. JPY, CHF and the USD have eased across the board, although volumes and the type of names involved are still though to be low quality, suggesting that the movement we've seen is more speculative in nature. Layered offers are noted in EUR-USD from 1.2760 up to 1.2800, while the downside sees bids at 1.2700, 1.2680 and 1.2650-60.

Daily Forex Fundamentals | Written by DailyFX | Oct 29 08 08:56 GMT |