Euro is falling to its lowest level since September after Draghi’s speech yesterday
The Euro tumbled after the ECB announced it would cut its monthly purchases by half to EUR 30 billion from January, with a nine-month extension. Markets regarded the tapering move as dovish given the extension. In the US, the House of Representatives approved the Senate budget which paves the way for tax reform. The Euro’s sharp fall boosted the US Dollar with broad-based gains. The Dollar Index (USD/DXY), which tracks the Greenback’s performance against 6 currencies soared 1.14% to 94.72, its highest since mid-July.
The ECB left its minimum bid rate unchanged at 0.00%. Mario Draghi promised to maintain near-zero rates for as long as necessary.
German Bund prices rose after the ECB’s announcement. The yield on the German Ten Year Bund fell 7 basis points to 0.41%. In contrast, the US Ten Year Treasury yield rose 2 basis points to 2.46%.
Global stocks were mostly up with Wall Street reporting robust earnings. The Dow closed up 0.4%.
USD/DXY – soars to 94.72, mid-July highs, breaking through resistance at 94.20.
EUR/USD – tumbles 1.5% to 1.1652 (1.1810 yesterday).
GBP/USD – lower to 1.3160 from 1.3257.
USD/JPY – mild gains to 113.97 (113.72 yesterday)
AUD/USD – falls to 0.7660 from 0.7700
USD/SGD – rallies to close at 1.3673 (1.3607 yesterday). The Dollar rose against the Emerging Market currencies.
Outlook: The divergence between central banks is on and has put a fresh bid under the US Dollar. Last night the ECB signaled that it would not raise rates next year. The Federal Reserve has signaled three rate hikes in 2018. Yesterday the Swedish and Norwegian Central banks kept their policies on hold. Markets are now waiting to see if the Bank Of England will go ahead with a rise in rates on November 2. Brexit negotiations remain a worry. In Australia, the miss on inflation data will keep the RBA on hold. Yesterday, Bank of Canada Governor Stephen Poloz said that “lots of things have to come together before the next rate hike”.
The Dollar’s rise was broad-based with Emerging Market currencies all weaker. The South African Rand continued to weaken, falling another 1%. South Africa’s fiscal situation is worsening.
Events and economic data out today:
Japan National and Tokyo Core CPI data: (GMT 11.30 pm, Oct 26/Local Time 10.30 am, Oct 27) forecast for National Core CPI: 0.8% from 0.7%; forecast for Tokyo Core CPI: 0.5% from 0.5%
Australia Q3 PPI: (GMT 12.30 am, Oct 27/Local Time 11.30 am, Oct 27) forecast: 0.4% from 0.5%.
US Advance Q3 GDP Annualised, US Q3 Personal Consumption Expenditures: (GMT 12.30 pm, Oct 27/Local Time 11.30 pm, Oct 27) forecast for annualized Q3 GDP: 2.5% from upwardly revised 3.1%; forecast for Q3 Personal Consumption Expenditures: 1.2% from 0.3%
US Revised University of Michigan Consumer Sentiment Index: (GMT 2 pm, Oct 27/Local Time 1 am, Oct 28) forecast: 100.8 from 101.1
Trading View: The Dollar has had a strong move up, and has broken some key levels. In some currencies, speculators are still carrying long positions which are at multi-year highs. Markets will still need fresh stimulus to propel the Greenback higher. The focus is on the US GDP data, released later today.
The Dollar Index (USD/DXY) broke through the 94.00/20 strong resistance area. This now becomes the immediate support. Immediate resistance can be found at 95.00 and then 95.70. The potential is for a rise to the 96.20/96.50 levels we saw in late June, early July.
EUR/USD – broke through the September low of 1.1680, trading to a low of 1.1648 overnight. Immediate support can be found at 1.1640 and then at 1.1620 (July 25 low). Immediate resistance lies at 1.1680 and then 1.1720. In his speech, Mario Draghi said that while the Euro Zone is growing, inflation is not yet at its target and wage growth remains a concern. The latest CFTC/Reuters report saw a lightening of speculative long Euro positions but the net total is still at multi-year highs. Likely range today 1.1630-1.1680. Look to sell rallies.
GBP/USD – Sterling fell under the weight of a strong US Dollar as well as the uncertainty of Brexit negotiations. The chances for a BOE rate hike following better-than-forecast GDP growth faded. GBP/USD has immediate resistance at 1.3180 and then at 1.3210. Immediate support can be found at 1.3130 and 1.3110. At the end of the day, it will be the US Dollar that will dictate where the Pounds next move is headed. Likely range 1.3130-1.3180. Sell rallies
USD/JPY – closed up slightly higher at 113.95 before moving up through 114.00 to it’s current 114.05. The Japanese Ten Year JGB yield was unchanged at 0.06% while it’s US counterpart (US Ten Year yield) rose 2 basis points to 2.46%. This will keep the US Dollar bid against the Yen. USD/JPY has immediate resistance at 114.20/30. Immediate support can be found at 113.80 and then at 113.50. Given the widening of the yield differentials, look to buy USD/JPY on dips with today’s likely range 113.70-14.30.
AUD/USD – broke through 0.77 cents to close lower at 0.7660 in New York. In the Aussie (like the Euro) speculative longs are at multi-year highs. AUD/USD has immediate resistance at 0.7680 and then at 0.7700. Immediate support can be found at 0.7630 and then at 0.7610. A break of 0.7610 would see 0.7550. Likely range today 0.7630-0.7680. Look to sell rallies.
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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.
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