ECB sends EURUSD tum­bling down

Financial Mirror (Cyprus) - - FRONT PAGE -

The Euro­pean Cen­tral Bank (ECB) shocked the fi­nan­cial mar­kets on Thurs­day af­ter­noon by un­ex­pect­edly act­ing again in its on­go­ing bat­tle against low in­fla­tion lev­els. Not only did the ECB cut in­ter­est rates to a new record low 0.05% but the cen­tral bank also raised neg­a­tive de­posit rates to 0.2%. Fur­ther­more, the ECB said it plans to launch an as­set pur­chase pro­gramme, send­ing the EURUSD to its low­est value in over a year (1.2919).

The equally sur­pris­ing news that the United States only cre­ated 142,000 new jobs in Au­gust gave the sud­den down­ward move­ment in the EURUSD some breath­ing space, with the 1.2919 area now emerg­ing as the next fea­tured support level for the pair.

In other news, there was op­ti­mism fol­low­ing sug­ges­tions from Ger­man eco­nomic re­leases that the EU’s main GDP contributor was re­turn­ing to form. Ger­man In­dus­trial Pro­duc­tion recorded its strong­est month in over two years dur­ing July, with a 1.9% in­crease. This was fol­lowed by the im­pres­sive news that Fac­tory Or­ders rose by 4.6% in the same month.

This week, eco­nomic data from the Euro­pean Union is lower in quan­tity. The most no­tice­able re­leases in­clude Ger­man Trade Bal­ance (Tues­day) Ger­man CPI (Wed­nes­day) and the lat­est EU un­em­ploy­ment statis­tics (Fri­day). Fur­ther Rus­sian eco­nomic sanc­tions should also weigh on the EURUSD.

In re­gards to the tech­ni­cals on the Daily time­frame, a bear­ish chan­nel re­mains in con­trol of the over­all EURUSD di­rec­tion. How­ever, we are now mov­ing fur­ther to­wards the lower end of the chan­nel and if the pair is go­ing to follow tech­ni­cal pat­terns, a con­sol­i­da­tion of losses is pos­si­ble. This would be helped if there are fur­ther signs that Ger­man data is re­turn­ing to sta­bil­ity. Equally, the sur­pris­ingly poor US NFP could en­cour­age con­cerns that the Fed­eral Re­serve will de­lay mon­e­tary tight­en­ing.

Support lev­els can be found at 1.2940, along­side the cur­rent yearly low, 1.2919. If the EURUSD is go­ing to re­turn to the 1.30 area, re­sis­tance can be found at 1.3013 and 1.3051. GBPUSD ac­cel­er­ated with the pair de­clin­ing by over 200 pips. The lat­est UK Con­struc­tion PMI was recorded at its high­est in seven months, with this be­ing sub­se­quently fol­lowed by Wed­nes­day’s news that UK Ser­vices growth had reached a 10 month high. Fur­ther pos­i­tive news in­cluded The Of­fice for Na­tional Statis­tics (ONS) re­vis­ing up­wards the es­ti­mates for UK GDP growth, as well as a re­port show­ing that the UK had moved up the global rank­ings in an an­nual survey by the World Eco­nomic Fo­rum (WEF).

Nonethe­less, a YouGov poll in­di­cat­ing that Yes and No votes for a Scot­tish ref­er­en­dum had nar­rowed raised fears of po­lit­i­cal in­sta­bil­ity. This en­cour­aged a sharp de­cline in the GBPUSD. Ad­di­tion­ally, aware­ness from in­vestors that re­gard­less of im­pres­sive UK fun­da­men­tal per­for­mances, the BoE was still un­likely to raise rates added to the down­ward mo­men­tum.

There is a high quan­tity of UK eco­nomic data this week, in­clud­ing Trade Bal­ance, Man­u­fac­tur­ing and In­dus­trial Pro­duc­tion and the NIESR GDP es­ti­mate of Au­gust. Ad­di­tion­ally, there are re­ports of plans for a speech from BoE Gov­er­nor Car­ney. In re­gards to the up­com­ing ref­er­en­dum, the prospect of an in­de­pen­dent Scot­land is clearly gain­ing mo­men­tum and caus­ing un­ease among in­vestors. An in­de­pen­dent Scot­land had not been priced into the mar­kets be­fore, but is cer­tainly hav­ing an im­pact now.

From a tech­ni­cal stand­point on the Daily time­frame, the GBPUSD looks very bear­ish. The Cable is now teas­ing the con­clu­sion of a down­ward chan­nel which has con­trolled the pair’s di­rec­tion since late June, with fur­ther moves south likely ac­cel­er­at­ing when the chan­nel is con­firmed as hav­ing ended. In which case, support can be found at 1.6271 and 1.6209.

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