EURUSD – A fresh two-year low
The EU economic sentiment continued to weaken last week following the European Commission downgrading economic growth forecasts alongside an unexpected 1.3% monthly decline in retail sales. ECB President Mario Draghi wasted no time in sending the Euro to a fresh twoyear low on Thursday (1.2456) when he said EU inflation levels were set to remain low and the ECB is willing to further loosen monetary policy to support the Eurozone economy. The US economy adding a slightly more modest 214,000 jobs to its payroll in October led to the Eurodollar concluding the week back at 1.24.
There is no doubt that the longer term risks weigh towards the downside for EURUSD. At the same time, shorter term USD profit-taking will lead to the Eurodollar benefiting from risk appetite. The US employment report not meeting the high expectations set for it, and US exports declining due to the higher valued USD, are both valid reasons for the Federal Reserve to cool down interest rate expectations, meaning investors should be vigilant towards any potential moves towards 1.25. On Friday, EU GDP figures are released and further signs of stagnant economic growth or the EU slipping back into contraction territory will have bearish implications on the Euro.
From a technical standpoint, the Eurodollar is continuing to trade in the same bearish direction it has done for months, with there being no indications this will end in November. The pair has just bounced away from the lower trendline, which has proven dynamic in the past. The pair entering a consolidation period would allow the EURUSD to trade lower in the future. Possible resistance can be found at 1.2440 and 1.2470, while support is located at 1.24 and 1.2358. main GDP contributor - unexpectedly dropped to a 17month month low of 56.2 and heavily weakened investor appetite towards the GBP. A comment from Federal Reserve Chair Janet Yellen on Friday that “supportive policy is still needed in slow global recovery” increased speculation that the Fed will keep interest rates low and encouraged USD profit-taking, resulting in the Cable concluding the week around 1.59.
The Cable is in for another volatile week, with Wednesday’s Bank of England (BoE) Inflation Report posing one of the major event risks for the week. Bearing in mind UK CPI recently dropped to a five-year low of 1.2%, the downside risks for the inflation report are strong. The BoE’s views on weak price pressures have strengthened over recent months and, when you consider that alongside signals of UK economic momentum slowing, BoE Governor Carney might announce on Wednesday that a potential UK rate rise will be delayed after Spring 2015.
On the technicals, GBPUSD downside moves can find support at 1.5874, 1.5824 and 1.5790. If the USD profittaking that occurred on Friday afternoon continues, possible resistance levels are located at 1.5926, 1.5942 and 1.5994.