ECB sends EURUSD tumbling down
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.