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EUR/USD Posts Strong Gain on Concerns Over ECB Stimulus Moves

By:
James Hyerczyk

Position-squaring and aggressive short-covering helped drive the EUR/USD sharply higher on Tuesday. The move was triggered by worries over whether the

EUR/USD Posts Strong Gain on Concerns Over ECB Stimulus Moves

EURUSD
Position-squaring and aggressive short-covering helped drive the EUR/USD sharply higher on Tuesday. The move was triggered by worries over whether the European Central Bank’s plan to stimulus the Euro Zone economy will be enough to weaken the Forex pair further in the wake of stronger-than-expected European economic data.

Traders reacted strongly to new data which showed unemployment in Germany hitting a record low and Euro Zone manufacturing growth reaching a 19-month high. Spanish Manufacturing PMI posted a reading of 53.1 versus an estimate of 51.9. The German Unemployment Change was -13K. Traders were looking for a decline of 4K. The Euro Zone Unemployment rate came in at 10.7% versus a 10.8% estimate.

Technical factors helped the GBP/USD post a strong gain on Tuesday. The move was triggered by yesterday’s closing price reversal bottom chart formation. This move could produce a 2 to 3 day rally. Fundamentally, the news wasn’t that great. U.K. Manufacturing PMI came in at 52.7. This was below the 53.7 estimate.

In other news, the Bank of England said it would ease pressure on U.K. banks to hold more capital, drawing a line under years of post-crisis reforms aimed at making the banking sector safer.

“The system is in sight of where it needs to be,” Bank of England Governor Mark Carney told reporters. “There is no new wave of capital requirements coming.”

The central bank also said that capital requirements wouldn’t continue to creep up in coming years stating that lenders needed to hold Tier 1 equity of 11% of risk adjusted assets by 2019, a target that most banks have nearly already hit.

The announcement came as the Bank of England issued the results of its latest U.K. bank stress test.

Central bank officials also cited potential threats from certain corners of the real-estate market and financial market fragility, but concluded the risks weren’t strong enough to warrant any new policy actions.

The volatile U.S. Dollar triggered a two-sided reaction in the crude oil market on Tuesday. Despite the moment by the dollar, the main focus for traders remained the global oversupply situation. On December 4, OPEC will hold a key conference at which it will decide its production levels. Traders widely believe the cartel will stick to its current output target.

Additionally, the market is now expecting crude oil stocks to decline to the end of the year, in line with seasonal patterns. If crude oil stocks increase more than expected then prices could pierce the $40 level.

February Comex Gold futures posted a choppy, two-sided trade, mostly mirroring the price action by the U.S. Dollar. The price action was attributed to short-covering and position-squaring ahead of Friday’s U.S. Non-Farm Payrolls report and the Fed meeting later in the month. 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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