EURUSD – A fresh two-year low

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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