Euro Hits 14-month Low as Interest Rates Buoy the Greenback

EUR/USD hit fresh 14-month lows at 1.2859, falling quite sharply after breaching the 1.2870 during the Asian trading session. Favorable yield differentials continue to underpin the greenback, with the 10-year T-note over Bund spread having risen to new major-trend highs above 150 basis points. The next level of target support on the currency pair is seen near the July 2013 lows at 1.2755.  Resistance is seen near the 10-day moving average at 1.3055.

The ECB vice president told CNN late Monday that Draghi already said that the ECB does not exclude any instrument that is legal and within the central bank’s mandate and that there are still “further tools” the ECB can use. This leaves the door open for fully blown QE and broad based asset purchases. Constancio said that the ECB expects that after the painful reforms in the periphery other countries will move toward the center of Europe  and will also do reforms that will help to increase potential growth in Europe.

The EU delayed new sanctions against Russia for at least a few days. Officials Monday agreed a new package of sanctions against Russia, which reportedly include excluding some Russian state-owned defense and energy companies from raising capital in the EU. The full details were originally due to be published Tuesday, but governments decided to put on hold the implementation of the new sanctions for at least a few days, to assess the viability of the ceasefire in the Ukraine. This also means that the risk of further trade retaliation from Russia, which may include a closure of Russia’s airspace for European planes, is banned for now.

Momentum on the currency pair is negative as the MACD (moving average convergence divergence) index prints in negative territory with a downward sloping trajectory.  The RSI (relative strength index) moved lower with price action reflecting accelerating negative momentum while printing a reading of 16, which is well below the oversold trigger level of 30 and could foreshadow a correction.

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Bank of Japan's Iwata says consumer prices to increase along with wages

Bank of Japan Deputy Governor Kikuo Iwata Wednesday said consumer prices are likely to increase further along with wages.

"The year-on-year rate of increase in the CPI is expected to accelerate moderately, along with increasing wages, against the backdrop of rising inflation expectations as well as improvements in the output gap, given that Japan's economy is expected to continue growing at a pace above its potential," he said.

On monetary policy Iwata said, "the BoJ will continue to strive to pursue appropriate monetary policy measures on its own accord to achieve the price stability target of 2% at the earliest possible time."

The majority of the nine-board shared the view that Japan can achieve the 2% price stability target at around fiscal 2015.

The BoJ will review medium-term outlooks for real economic growth and inflation rates until fiscal 2016 at the Oct. 31 policy-setting meeting.

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Wall Street ends lower as bond yields rise, Apple falls

U.S. stocks fell on Tuesday as bond yields hit their highest in a month on expectations interest rates could rise sooner than some investors expect and as Apple (O:AAPL) shares declined.

Based on the latest available data, the Dow Jones industrial average (DJI) fell 97.62 points or 0.57 percent, to 17,013.8, the S&P 500 (SPX) lost 13.11 points or 0.65 percent, to 1,988.43 and the Nasdaq Composite (IXIC) dropped 40.00 points or 0.87 percent, to 4,552.29.

© Reuters. Traders work on the floor of the New York Stock Exchange

(Reporting by Caroline Valetkevitch; Editing by Meredith Mazzilli)

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