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German fin min monthly report says economy remains on a solid footing
The monthly report from Germany's finance ministry
Yesterday the EURUSD tried to rally but found enough resistance at the 10-day moving average to reverse and closed in the red, near the low of the day, furthermore closed below the previous day low, which suggests a strong bearish momentum.
The pair continues to trade well below the 10, 50 and 200-day moving averages that should act as dynamic resistances.
The key levels to watch are: the 10-day moving average at 1.1007 (resistance), a daily resistance at 1.1097, July swing low at 1.0952 (resistance), a daily support at 1.0900 and another daily support at 1.0819.
EUR/USD Falls to Eight-Month Low
Sellers remain active in the euro, with EUR/USD dropping to a new eight-month low in today’s trading, solidly taking out the June 24th spike low established following the Brexit referendum. The pair is currently trading at 1.089, down 0.34% from Thursday’s N.Y. close.
The pair was under pressure on strength in the dollar pre-ECB in Thursday’s trading, experienced a muted reaction when the interest rate decision was announced, then spiked higher at the start of European Central Bank President Draghi’s press conference, breaching minor near term resistance levels and trading within striking distance of more significant resistance at 1.10584, representing the October 13/14 highs and a test of the former support defined by the August 5th reaction low.
However, the spike higher proved unsustainable as sellers quickly stepped in and drove the euro sharply lower to test the spike low established following the June Brexit referendum at 1.09119. At the N.Y. close, EUR/USD was down 0.46% from Wednesday’s closing level. As the euro moved to a 4-month low, the dollar rallied, advancing to a seven-month high.
Thursday’s flush was in response to the investors interpreting Draghi’s comments to suggest more stimulus is possible in December. According to a report from Reuters, Draghi “left a wide range of options on the table and emphasized that a long-awaited rise in inflation is predicated on ‘very substantial’ monetary accommodation.” Draghi also stated inflation is expected to rise gradually, baseline scenario is subject to downside risks and the December assessment will benefit from new projections through 2019 and committee work. He also noted that the latest data points to continued growth in Q3. Draghi did not discuss changing policy or tapering.
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EUR/USD forecast for the week of October 24, 2016
The EUR/USD pair initially tried to rally during the course of the week, but turn right back around to fall rather significantly. If we can reach down below the bottom of the range for the week, this market should continue to drop. We could then go to the 1.05 level as it is a massive amount of support as seen in the month of November. Any rally at this point in time will probably continue to show signs of exhaustion. With this, I remain bearish but it might be easier to sell this market rather than buy it.
EUR/USD Weekly Forecast October 24-28
EUR/USD pushed lower this past week to post a third consecutive weekly decline. The pair remained in a range in the first half of the week above notable support at 1.0970, continuing to decline in line with the daily downtrend after comments from Draghi at the ECB meeting held on Thursday.
Inflation data out of the United States this week failed to have much of an impact on the Dollar. CPI figures were in line with expectations with a rise of 0.3% in the month to September and 1.5% on an annual basis. The core figures came slightly softer than expected. A small decline in the currency pair was short-lived with support at 1.0970 triggering a bounce.
The ECB meeting delivered the most volatility during the past week. In the early part of the press conference, comments from Draghi that the ECB had not discussed extending the bond purchasing program triggered a spike higher in the Euro and as a result, a sharp decline in the Greenback. Draghi also stated that there was no discussing of tapering, dismissing earlier reports that the ECB had come to a consensus to taper their bond purchasing program. The main takeaway from the meeting was that the central bank was looking to delay decisions once again, but the clarification in regards to potential tapering resulted in a sharp move lower in the Euro, triggering a reversal across the majors.
The latest COT data reported a large build in short positioning for the Euro. On a week over week basis, non-commercials added a net $2.1 billion to bring the net short position to $15 billion. The Euro was reported to have the largest build on the short side among the majors in the week to October 18 with short contracts outpacing a build long contracts by two to one. The US Dollar net long was also increased to $19.3 billion from $17.6 billion reported in the prior week.
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