EUR/USD Grinds Higher in Anticipation of ECB Action

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The decision by the Reserve Bank of Australia to leave interest rates unchanged helped weaken the U.S. Dollar, setting a friendly tone for foreign currencies and commodities. The central bank decided to leave its benchmark lending rate at 3.5% after slashing it by a total of three-quarters of a percentage point over a two-month period earlier in the year.

The EUR/USD weakened a little after the release of a steeper-than-expected 1.7% fall in German factor orders in June. Italy’s economy posted a 0.7% quarterly contraction. This followed the 0.8% contraction in the first quarter. Both economic reports caused the Euro to bend, but the market was able to stabilize and firm shortly afterwards.

Technically, the Euro is holding Monday’s low and threatening to talk out the previous day’s high. An upside breakout could trigger a rally to 1.2478. New support is being created at a 50% level at 1.2394. The main trend is up the daily and the weekly is beginning to indicate a serious shift in sentiment.

The currency pair is being buoyed by the thought that the European Central Bank is gearing up for another round of bond buying in Spain and Italy. Investors are watching interest rates in these countries closely for clues as to the timing of the intervention. Investors are also looking for Spain to tap the rescue fund. This action would open the door to a move to lower interest rates by the ECB.

The GBP/USD is trading higher this morning despite lower U.K. manufacturing output and industrial production. Both reports indicated steep declines, but the numbers were smaller than forecast. Speculators are still looking for additional stimulus from the central bank as well as a possible credit-rating cut. Nonetheless, the overall weakness in the dollar is helping to boost the Sterling today.

The charts indicate a slight bias to the upside, but also a range bound trade. This morning, the British Pound crossed over to the bullish side of a short-term retracement zone, solidifying its upside bias. 1.5767 is resistance today. 1.5490 is support. A breakout to the upside will reaffirm the uptrend while a move through 1.5490 will turn the main trend to down.

December Gold futures are trending higher, but the move is somewhat of a grind, indicating low volatility. The market is beginning to pull-away from last week’s low at $1586.30, suggesting fresh buying. The next upside objective is the recent top at $1633.30.

September Crude Oil is posting an impressive follow-through to the upside. Buyers have driven the market to the bullish side of a 50% price level at $92.91, setting it up for a possible test of the July 19 top at $93.25. A breakout through this level could trigger a move to $95.88. The weaker dollar is the main reason for today’s rally. Volatility could kick in tomorrow when the weekly inventory report is released. There are still concerns that the slowing U.S. economy is curtailing demand for crude oil, leading to increased supply. 

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About: FX Empire Analyst - James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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