EURO HOLDS ITS GAINS AS TRADERS BEGIN TO LOOK TO THE ECB

The euro has had a wild ride in the past day or so as the market turned from trepidation to a state of relief over the Italian referendum. Matteo Renzi lost the referendum and subsequently tendered his resignation however it seems that the prospect of an early election has receded and this has calmed the nerves for markets. The euro unwound by close to 300 pips at one stage before drifting off overnight. With the euro holding on to its recovery gains, markets will now begin to look ahead to the ECB meeting on Thursday with an expectation of a QE extension of maybe 6 months but could the ECB also allude to potential future tapering of asset purchases?  With the euro recovering and Treasury yields consolidating in the past few days, the trade weighted dollar has made a downside break below the support at 100.6 which completed a small top pattern and implies around a 1.5% corrective move now. Equity markets have reacted positively to the Italian referendum with Wall Street positive into the close (S&P 500 +0.6 at 2205) and the Nikkei up +0.5%. European markets are looking mildly positive in early moves.