Suprises ahead for EUR and GBP
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.