Suprises ahead for EUR and GBP

Financial Mirror (Cyprus) - - FRONT PAGE -

Af­ter stat­ing dur­ing a tes­ti­mony to the EU Par­lia­ment a week ear­lier that the EURUSD was over­val­ued, ECB Pres­i­dent Mario Draghi will be con­tent to see that the EURUSD con­tin­ued to move to the down­side last week. In fact, the Euro con­cluded the week at its low­est level against the Dol­lar since Novem­ber 22, 2013. Bear­ish move­ment in the EURUSD in­ten­si­fied last Tues­day, af­ter news emerged that EU min­is­ters were con­gre­gat­ing in Brus­sels to dis­cuss the pos­si­bil­ity of fur­ther eco­nomic sanc­tions on Rus­sia. Fur­ther bear­ish mo­men­tum was felt on Fri­day, af­ter Ger­many’s lat­est IFO data missed ex­pec­ta­tions. This en­cour­aged a new yearly low of 1.3421.

In truth, which fluc­tu­ates dur­ing the di­rec­tion this pair first few days of the week is largely de­pen­dent on whether there will be any risk ap­petite in the cur­rency mar­kets in an­tic­i­pa­tion of the lat­est US GDP and FOMC de­ci­sion on Wed­nes­day. Af­ter los­ing over 100 pips last week, it is likely the EURUSD will try to re­gain a pro­por­tion of these losses. As well as the lat­est FOMC de­ci­sion and US GDP on Wed­nes­day, the mar­kets will also be fo­cused on the lat­est Ger­man CPI. On Thurs­day, the lat­est EU CPI is an­nounced with the EU econ­omy cur­rently en­coun­ter­ing low in­fla­tion lev­els and ac­cord­ing to Bloomberg, EU CPI re­mained at 0.5% for the third suc­ces­sive month in July. Con­fir­ma­tion of this will re­open the de­bate re­gard­ing whether the ECB needs to in­tro­duce a QE pro­gramme. There­fore, fur­ther bear­ish moves in the EURUSD re­main pos­si­ble. Mov­ing onto tech­ni­cals, a bear­ish trend line formed in April con­tin­ues to dic­tate the over­all di­rec­tion of the EURUSD. The over­all EU sen­ti­ment re­mains bleak and it will take quite a con­trast in fun­da­men­tals (such as EU CPI im­prov­ing) for this trend line to con­clude. Up­com­ing EURUSD sup­port lev­els are at 1.3412 and 1.3358. A down­side move to­wards the lat­ter level would rep­re­sent the low­est EURUSD val­u­a­tion since Oc­to­ber 2013.

Both the RSI and Sto­chas­tic Os­cil­la­tor are sug­gest­ing this pair is cur­rently over­sold and if the EURUSD does be­gin to re­cover some of last week’s losses, pos­si­ble EUR re­sis­tance can be seen at 1.3460 and 1.3474.

Many in­vestors could be rub­bing their eyes af­ter read­ing this but last week, the GBPUSD recorded over seven days of con­sec­u­tive losses for the first time since May 2012. Fol­low­ing the tragedy in eastern Europe, last week com­menced with in­vestors seek­ing safe-havens such as the USD. A lack of hawk­ish­ness in last Wed­nes­day’s BoE min­utes and Thurs­day’s UK re­tail sales fall­ing slightly below ex­pec­ta­tions fur­ther en­ticed in­vestors to take profit on the Ca­ble.

The GBPUSD con­cluded the week below 1.70 for the first time in a month.

With the ex­cep­tion of var­i­ous do­mes­tic hous­ing re­leases on Tues­day, UK eco­nomic data is low in vol­ume this week. Any fluc­tu­a­tion in GBPUSD will likely be con­trolled by what type of mar­ket re­ac­tion arises in an­tic­i­pa­tion of Wed­nes­day’s US GDP/ FOMC de­ci­sion and Fri­day’s non-farm pay­roll. If the GBPUSD con­tin­ues to suf­fer losses, this will sym­bol­ise the first time the GBPUSD has recorded more ten days of con­sec­u­tive losses since Fe­bru­ary 2010.

As re­gards tech­ni­cals, a bullish trend line which has been in play since Oc­to­ber 2013 con­tin­ues to con­trol the over­all GBPUSD di­rec­tion. How­ever, a ten­ta­tive bear­ish chan­nel has now emerged and the price ap­pears to be slowly pulling back to­wards the trend line. In­vestors could be look­ing at this trend line as a pos­si­ble en­try area.

Be­fore then, the RSI and Sto­chas­tic Os­cil­la­tor is in­di­cat­ing that it can ex­pe­ri­ence some more bear­ish move­ment be­fore en­ter­ing the over­sold bound­aries. Mean­ing, the 1.6950 or maybe even the 1.6923 sup­port level might be vis­ited over the next day or two.

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