ECB: No Surprise Press Conference Expected (page 2 of 2)

This however should have little impact on the European Central Bank's (ECB) interest rate decision tomorrow. It is expected to leave rates unchanged at four per cent. There is a slim chance that the central bank could hold a surprise press conference but given the volatility in the global equity markets, we think that this is extremely unlikely.

However if it does, this means that inflation is such a big concern that the ECB cannot afford to relax. It would also signal that it fully plans on raising interest rates when it returns from its holidays in September.

Alternatively, if the Bank does not hold a press conference, then that could mean another rate hike will not come until October.

Canadian, Australian, New Zealand dollars holds onto gains

The Canadian, Australian and New Zealand dollars all rebounded strongly today. The CAD rallied throughout the European and US trading session despite the reversal in oil prices.

Most of this movement was related to flow since there was no economic data released and comments from Finance Minister James Flaherty last night was bearish. He said Canada was seeing a little spill over from the US sub-prime mortgage crisis.

The Australian and New Zealand dollars are also stronger thanks to the sharp increase in Australian retail sales last month and a nice rise in the manufacturing PMI index. Originally expected to increase by one per cent, sales rose 1.4 per cent.

The Australian trade deficit however came under the weight of the stronger Aussie as exports decreased while imports increased. There are no further releases from Canada, Australia, and New Zealand until Friday.

Short term reversal in the yen crosses

The yen crosses reversed sharply on the back of the rebound in the Dow. The biggest winners were CAD/JPY, NZD/JPY and AUD/JPY.

The long wicks on each of the yen crosses suggest that we could see a further rebound over the next 24 hours, especially since the Dow found support today at the same level that it did back in June, which makes this a potential triple bottom.

Carry trades thrive in a low volatility environment. Although the VIX hit a one year high intraday, it closed up marginally. Bottom pickers need to be careful however since intraday surprises in the Dow have become the norm.

All it takes is another major blowup by a hedge fund or mortgage lender and a technically sound scenario could become completely invalidated.

Keep watching the Dow in the meantime since the yen crosses are moving in lockstep with the equity index. For a clue on how the US market could behave, watch Asian stocks tonight.