EUR/USD returns to pre-Draghi levels ahead of US GDP
Fawad Razaqzada July 26, 2019 6:46 PM
The single currency initially fell to a fresh 2019 low against the dollar in reaction to what looked like a dovish ECB Policy statement, before staging a sharp rally off the lows in response to President Mario Draghi’s comments at the press conference, where the ECB President appeared a lot less dovish than had been anticipated.
The EUR/USD came back to where it started before the European Central Bank’s policy announcement was made on Thursday. The single currency initially fell to a fresh 2019 low against the dollar in reaction to what looked like a dovish ECB Policy statement, before staging a sharp rally off the lows in response to President Mario Draghi’s comments at the press conference, where the ECB President appeared a lot less dovish than had been anticipated. He said that there were no discussions of cutting interest rates on Thursday, while any rate cut would come with mitigating measures. What’s more, there was a lack of unanimity in discussions, according to Draghi. But overall, the central bank did appear to prepare the markets for easing in September. So, fundamentally, the outlook remains bearish for the euro.
The EUR/USD will remain in focus later on with the release of US second quarter GDP. The world’s largest economy is forecast to grow at its slowest pace since 2016, ahead of an expected rate cut from the Federal Reserve next week. GDP is expected to print a meagre +1.8% q/q annualised (that is, quarterly change x4) versus +3.1% in Q1. This should move the markets, especially if the actual number shows a large deviation from the expected reading. So, hold off your weekend plans until after it is published.
Looking ahead to next week, there will be plenty of news that could impact the EUR/USD exchange rate. Among other things, we will have CPI and retail sales from the Eurozone, while US data includes the always-important non-farm payrolls report. For a more in-depth outlook, watch out for our week ahead report due later this afternoon.
Meanwhile from a purely technical point of view, the EUR/USD still looks heavy with price unable to break through the 1.1180-1.1210 resistance area yesterday. So a breakdown below 1.1100 towards the 127.2% Fibonacci extension at 1.1025 looks the more likely outcome at this stage than a short-covering rally towards the 200-day average at 1.1300. That is unless US GDP comes in well below expectations today or the Fed cuts by 50 basis points next week.
Source: Trading View and City Index
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.