Chart of the Day: EURUSD
The EURUSD tested fresh yearly lows last week, although the sellers failed to see the pair close below the key 1.1106 level (23 May low). A move below this floor, however, still remains a strong possibility ahead of the key euro GDP and CPI data (both at 7 pm AEST tomorrow). I feel it’ll get a lot of attention if it plays out. Last week’s European Central Bank comments should only reconfirm the current view that quantitative easing (bond buying) is likely to be restarted later this year, in an effort to stimulate growth and inflation.
We certainly shouldn’t ignore the other key events of the week, with Thursday’s FOMC meeting and Friday’s non-farm payrolls clearly going to impact the USD. The market has already factored in a 25bp rate cut, with 87% of economists also projecting a move lower in rates. But there are also those brave souls who still believe there’s room for a 50bp cut. The outcome is unexpected, and would most certainly take the market by surprise if we see it come to fruition — causing the US dollar to depreciate, and providing some breathing space for EURUSD in the short term.
Overnight, we’ve seen a strong reversal as the buyers defend the crucial support level at 1.1106. The close at 1.1145 might give short-term confidence for the buyers. However, we aren’t to ignore the overall downtrend in play, as the pair is making lower highs and lower lows since June highs.
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