The established trends in FX market continued this morning.
The pound’s relentless selling gathered pace with the GBP/USD falling to its lowest level since August, while the EUR/GBP rallied above the 0.89 handle for the first time since early October. The euro obviously gained ground against the pound and was also firmer against the yen, but it was down against all other major currencies with the EUR/USD trading just 50 pips above that long-term pivotal level of 1.1300.
The yen, meanwhile, was down across the board, most notably against commodity currencies, ahead of the Bank of Japan’s monetary policy decision tomorrow and as a small rebound for global stocks reduced the appeal of safe haven assets. For the same reason and the dollar’s continued rise, gold was down as well.
Weakness of European currencies boost dollar
The greenback has found renewed support of late, in part because of better-than-expected data in the US and not-so-good numbers from Europe, weighing on the likes of the EUR/USD and GBP/USD and underpinning the Dollar Index. Obviously, the Brexit stalemate and the stand-off between the EU and Italy over the nation’s 2019 budget plans are additional, perhaps bigger, factors weighing on these pairs.
Eurozone GDP disappoints
We saw better than expected US GDP data on Friday while core PCE Price Index, which is rumoured to be the Federal Reserve's favourite inflation measure, came in above expectations on Monday.
In contrast, data from Europe has been poor. After those disappointing PMI data from the single currency bloc last week, today we found out that economic growth was anaemic in the third quarter. GDP expanded by a modest 0.2% in Q3 versus 0.4% expected.
What’s more, French consumer spending fell surprisingly sharply by 1.7% month-over-month in September.
And there was more bad news from the UK: the Confederation of British Industry (CBI)’s Realized Sales Index eased to just 5 in October, down sharply from 23 recorded in the previous month. A reading above zero indicates higher sales volume, below indicates lower. So, according to this survey, sales did grow this month but at a much slower pace. This therefore bodes ill for the official retail sales data, due for publication in mid-November.
Technical outlook: EUR/USD could drop below 1.13
With lots of short-term support levels broken, the downward pressure is growing on the EUR/USD. And now a breakdown below 1.1300 looks likely. It is likely that a number of trapped bulls will have their stop loss orders placed below this handle, as they believe 1.13 must be a strong support given the reaction we got from there back in August.
Well, it was strong then but with the lack of any significant follow-through since, one has to wonder whether the buyers will step in here again. While there is the prospects of a double bottom reversal, we would only consider that if we see a false break and a significant move back above 1.13 in the days ahead. But the way it is looking, price might fall and hold below 1.13, in which case, there could be further downside follow-through towards the 127.2% Fibonacci extension at 1.1160/2 area.
Meanwhile in the event price goes back above the old support area between 1.1430 and 1.1440, this would put us on a bullish alert, although technically the trend would only turn bullish when it creates a higher high above the most recent peak at 1.1620.
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