European shares came under selling pressure on Wednesday ahead of the ECB meeting. Commodity markets and emerging market currencies pare down recent gains, indicating waning risk appetite. Another realm of risk assets, cryptocurrency markets, sustain deeper losses.

Two key events for today are the meeting of the ECB and the Bank of Canada. The balance of risks for the Euro is slightly shifted downward (i.e., EURUSD sales are likely), since neither the economic component, nor the spreads of bond yields of the leading EU countries and the periphery do not currently contribute to the hawkish position of the ECB. On the other hand, a weak Euro in combination with rising commodity prices spur inflation expectations, which the ECB may reflect in its economic forecast today. An upward revision of inflation, together with an unchanged stance on tightening the policy, is a clear signal for the sale of the national currency as the expected real return on fixed income assets will need to be revised downward, i.e., investors will be forced to look for yields elsewhere (outside EU?)

Depending on the degree of dovishness of Lagarde's speech today, EURUSD poised to test lower levels, especially lower bound of major downtrend –the area of 1.1520-1.1540:

A number of US data yesterday indicated continued expansion - consumer sentiment from the Conference Board (above forecast), Dallas and Richmond Fed indices for manufacturing and services (above forecast). Durable goods orders are expected today to assess consumer expectations in the US in light of rising inflation pressures, including on expensive goods such as cars.

The API report showed that reserves at Cushing could have decreased by 3.73 million barrels, total oil reserves increased by 2.32 million barrels, and gasoline and distillate stocks rose by 530K and 986K barrels, respectively. Market participants are closely following today's EIA report, in particular the Cushing inventory update. If it indicates decline below 30 million barrels WTI timespreads will be likely offered additional support.

The Bank of Canada may announce a QE cut today and this is the baseline scenario for CAD which has already been factored into the exchange rate. Nevertheless, caution in the BoC’s outlook of future rate hikes may further weaken CAD, for this there are other prerequisites – weakness of the oil market, as well as technical setup in USDCAD:

In the course of rebound from July lows, USDCAD made a breakout from the downtrend channel and can now target the upper bound of current short-term uptrend channel which coincides with major resistance level at 1.25.