At their December meeting, the ECB kept rates unchanged. However, they announced a nine month extension of its QE programme from March 2017 until December 2017.

The additional nine months of easing will be at a reduced size of €60 billion per month compared to current asset purchases which total €80 billion per month. In order to avoid bond scarcity, the ECB are to reduce the minimum length of purchasable bonds from one to two years, as well as buying below the deposit rate from January 2017.

Although QE is to be reduced from €80 billion to €60 billion, Draghi stressed that the ECB ‘wish to have a sustained presence in the market and tapering was not discussed at the meeting’. Furthermore, Draghi stated that ‘they could move purchases back to €80 billion’ and that ‘QE is open-ended’. With the ECB extending its QE programme and presenting an overall dovish tone at the accompanying press conference, the euro weakened across the board and has continued to remain pressured since.

Employment in the Eurozone has decreased to its lowest level in seven years at 9.8% for October, versus expectations of remaining unchanged at 10.0%.

With the ECB extending its QE programme and presenting an overall dovish tone at their December meeting, my fundamental bearish bias for the euro has increased even further and I expect the euro to remain pressured for the foreseeable future.


The Bank of Japan left interest on excess reserves at -0.10% at its December meeting. One of the Bank of Japan’s concerns is that low interest rates could hurt the profits and stability of financial institutions - but that hasn’t forced them to alter course yet. For now, the central bank’s QQE programme looks set to continue at an annual rate 80 trillion yen.

Although fundamentally JPY is a bearish currency as inflation falls, it will continue to remain attractive as a safe-haven currency during 2017 and therefore strengthen during times of uncertainty/risk-off sentiment.


During their November meeting, the Bank of Canada left monetary policy unchanged as was widely expected. In the accompanying statement, the central bank stated that ‘global economic conditions have strengthened as anticipated’. However, they went on to add that ‘uncertainty, which has been undermining business confidence and dampening investment in Canada’s major trading partners, remains undiminished’.

Furthermore, they acknowledged that considerable slack remains in the labour market despite recent gains - and that inflation has picked up slightly, but still remains below expectations. Overall, the November meeting failed to provide any new surprises.

As the Bank of Canada are expected to remain on hold for the time being with inflation moving back into their target range, I expect oil prices to remain the primary driver of CAD in 2017 due to it being a key source of economic growth and income for the Canadian economy. Strength in oil prices should see CAD remain supported, while weakness in oil prices should see CAD pressured.

Keep track of events

We’re in a time of high unpredictability. That’s why it’s more important than ever to keep track of global events and understand the alternative scenarios that might unfold from them. If 2016 is anything to go back, our best efforts to predict what happens can sometimes fall short. However, a deep understanding of the central banks and their priorities can protect traders from periods of volatility.

Jarratt Davis
FX trader, Funds Manager,Mentor
and Author of How to Trade a Currency Fund