Article by ForexTime
Although this is starting to become a recurring theme, the EURUSD dropped down to a further yearly low yesterday (1.3332). The markets reacted with disappointment to the news that German Factory Orders declined 3.2% in June, their worst performance since September 2011. There was further dismay when it was announced that Italy had fallen back into recession. Italian Gross Domestic Product contracted by 0.2% in Q2, following a 0.1% contraction in Q1. However, the EURUSD recovered all losses by the end Wednesday’s trading and concluded the session at 1.3385.
For those who are a little bit puzzled as to why the EURUSD recovered all losses, it’s likely linked to Thursday being interest rate decision day. Despite recent EU data deteriorating, it appears the ECB will not alter monetary policy this month. Instead, the Central Bank will allow more time for June’s stimulus measures to have a chance to make an impact on the European economy. None of the 64 economists asked in a recent Reuters poll expected any change from the ECB today. All eyes will be on the Mario Draghi press conference. Draghi has made no hidden secret regarding his opinion that the EURUSD is overvalued and it would not surprise if he uses his press conference to send the Euro lower. He could do this by talking up the impact geo-political escalations are having on EU data, or reaffirming how serious low inflation levels are to the EU economy.
Moving on to the Cable, and it turned out that the GBP bulls attempt to regain momentum was short-lived. The latest monthly Industrial Production and Manufacturing Production data showed that both sectors only increased by 0.3% in June. This was half the market expectation and sent the GBPUSD around 50 pips lower (1.6821). The GBPUSD concluded trading at 1.6852.
Today, the latest Bank of England (BoE) Interest Rate Decision is announced. The BoE have been under pressure to specify a timeframe for a rate increase for nearly a year now. As a result, investors are showing impatience and taking profit in the Cable. A GBPUSD support level on the Daily timeframe, 1.6815 has proven dynamic this week. However, if word emerges that one member of the Monetary Policy Committee (MPC) might have voted for an interest rate increase, a bullish reversal in the GBPUSD would likely be sharp. 1.6864, 1.6882 and 1.6918 can be used as potential resistance levels.
The USDJPY pulled back sharply yesterday, declining by around 70 pips throughout the day before concluding trading at 102.090. This is a sign that investors are now taking profit in the USDJPY, after the pair failed to surpass the psychological 103 resistance level on several occasions last week.
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This afternoon, the latest United States Initial Jobless Claims are announced and this followed by the Bank of Japan’s (BoJ) Monetary Policy Statement in the early hours of Friday morning. Various BoJ policy makers have displayed confidence that monetary targets remain achievable. Despite the pair pulling back heavily yesterday, it’s still possible for the pair to continue a correction. Possible support can be found at 102.025 and 101.858. If the pair looks to recover yesterdays losses, resistance can be located at 102.450 and 102.539.
The major economic news headline overnight, was that the Australian unemployment rate jumped to 6.4%, the highest in a decade. The Australian Bureau of Statistics (ABS) expressed that the unemployment report in July was 0.3% higher than the previous month. This sent the AUDUSD tumbling down to 0.9262, its lowest valuation since the 5th June.
This unexpected news is likely to have a detrimental impact on the AUDUSD today. As long as the downward movement continues, we can expect visitations to the 0.9257 and 0.9250 support levels.
The NZDUSD also suffered after the Australian employment report was announced, but managed to shrug away losses and conclude trading at 0.8479.
It is worth remembering that New Zealand’s own employment report, which was only released one day prior also missed expectations. This suggested that higher borrowing rates are having an impact on corporations within New Zealand. This will likely provide a reason for the Reserve Bank of New Zealand (RBNZ) to pause monetary tightening, which should send the Kiwi lower in the mid-term. Support can be found at 0.8440 and 0.8420.
Written by Jameel Ahmad, Chief Market Analyst at FXTM.
Follow Jameel on Twitter @Jameel_FXTM
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