USD held back on Fed-ECB with weaker stocks and commodities

The DXY (USD) index disappointed again yesterday. There was an initial rally to 99.288 from the day's open of 98.823 into European Central Bank (ECB) President Mario Draghi's testimony to the EU Parliament. Draghi reiterated the central bank's readiness for fresh stimulus to achieve its price stability mandate, hinting at action as early as 3 Dec. This brought EUR/USD to an intra-day low of 1.0689 before it moved higher to close at 1.0817.

The DXY's fall came later during the US trading session. The DXY simply retreated the moment US stocks opened weaker and kept heading down. Both the Dow Jones and the S&P500 indices ended 1.4% lower on the day on Fed hike worries which also hurt commodities. Fed officials reaffirmed that US rates were likely to head up on 16 Dec and sought to reassure that the pace of hike cycle would be gradual. DXY ended yesterday at 98.649. Copper fell to a six-year low while WTI oil prices slipped to $41.75 for the first time since 26 Aug.

As for today, main data to watch will be Eurozone's GDP and US inflation expectations. Consensus is looking for EZ real GDP growth to improve to 1.7% (YoY) in 3Q15 from 1.5% in the previous quarter but ZEW has retreated to 30.1 in Oct15 from its high of 64.8 in Apr15. Against weaker commodity prices, USD bulls are wary that the 1Y inflation expectations by the University of Michigan may fall below the 2.7-2.8% range seen in May-Oct15. As long as stocks and commodities are weak, markets find it challenging to balance between the ECB looking to step on the gas pedal, and the Fed tapping the brakes.