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Colin First

The EUR/USD pair broke through the 1.1400 level and fell to a fresh monthly low of 1.1355 yesterday following one of the most uneventful ECB monetary policy’ meetings of the year. The central bank decided to leave rates unchanged, as largely expected and the accompanying statement had nothing new to offer. Within the press conference, Draghi tried to pour cold water over the Italian situation, saying that he is confident both parts involved will reach an agreement. He repeated that significant stimulus is still needed for inflation, adding that he expects it to pick up toward the end of the year, despite the weaker momentum. The pair saw little rebound price action during Draghi’s speech moving as high as 1.1432 but headed into today’s Asian market hours well inside 1.13 handle.  As of writing, the pair is trading near flat with bearish bias at 1.1366 down by 0.07% on the day.

Further Downside Move Highly Likely For Common Currency

The European Central Bank (ECB) reaffirmed its commitment to end the asset purchase program in December despite Italy’s budget concerns, Brexit impasse, and recent softer data. But EUR has failed to pick up bid price action as Fed vice Chair Clarida signaled that the Fed officials remain unfazed by the recent stock market rout and hence, yield differentials are set to widen further in a USD-positive manner. Meanwhile there has been increase in risk off investor sentiment as  the Chinese yuan fell to a fresh 21-month low against the US dollar in Asia, triggering fears of a further escalation of a trade war between the US and China. Escalation of fear in market could see risky assets losing ground on last trading session of the week.

On release front, European market will see release of Gfk German consumer climate data and French PPI data while US markets will see release of Core PCE prices, Q3 preliminary GDP data, Michigan consumer expectations and Michigan Consumer Sentiment data updates. European markets will also see speeches from ECB’s Coeure and Draghi later today. When looking from technical perspective, for now the path of least resistance is on the downside. A below-forecast GDP reading would be USD-negative, but the gains in Euro’s end would still be capped as a sharp slowdown in the world’s biggest economy may not bode well for the already risk-averse equities. Expected support and resistance for the pair are at 1.1355, 1.1300, 1.2965 and 1.1422, 1.1468, 1.1500 respectively.

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