Lack of Fresh News from ECB Pressuring Euro

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The lack of fresh news out of the Euro Zone and from the European Central Bank is putting pressure on the Euro today. Rising Treasury yields in the U.S. is also encouraging investors to rush into the dollar, helping to push down the EUR/USD. Yesterday’s better-than-expected U.S. Retail Sales is leading some traders to believe the Federal Reserve will delay its next round of quantitative easing. Additionally, the lack of clarity from the ECB is causing traders to abandon their thought that the central bank will act swiftly and decisively over the near-term to push down interest rates in Spain and Italy.

Since reaching a bottom at 1.2042 almost three weeks ago on positive comments from ECB President Mario Draghi, the EUR/USD has stalled in its attempt to breakout to the upside. Currently, the Euro is hovering around the mid-point of its latest range at 1.2242, suggesting that investors still aren’t sure if the currency pair is a buy or a sell. Traders have been banking on the Fed and the ECB to begin fresh rounds of quantitative easing, but the charts are saying that these decisions are on hold at this time.

The GBP/USD remains in a trading range with a slight bias to the upside. Investors seem to be content with holding price levels at current levels since the recent news doesn’t support a sizable move in either direction.

Today, the U.K. Office for National Statistics reported that Britain’s unemployment rate fell for a third consecutive month in June to 8%. Some investors are questioning this number since it doesn’t mesh well with the weak GDP data. These investors are suggesting that the size of the contraction in the GDP may have been overstated given the rise in employment. In other words, either the jobs data has been misstated or the economy is actually not as weak as reported.

The sideways action in the GBP/USD indicates trader indecision. Some traders feel the economy may be nearing a bottom while others still believe that additional stimulus from the Bank of England may be needed to help the economy turn the corner. Increasing the size of its asset-buyback program will in effect flood the market with British Pounds. The recent price stability suggests that traders are increasing bets that the central bank will refrain from additional stimulus at this time.

Diminishing hopes that the Federal Reserve will implement another round of quantitative easing in September is helping to drive up the U.S. Dollar, pressuring commodities priced in dollars such as gold and crude oil. As the dollar rises, gold and crude oil get more expensive to foreigners, leading to decreased demand. Investors have been trying to hold gold steady by buying weakness and selling strength. This is the reason for the sideways trading. Bearish crude oil investors cite the high supply as their main reason for selling the commodity. However, speculators have been supporting the market on weakness because of the possibility of military action in the Middle East. 

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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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