EUR/USD Weakens on Lower-than-Expected Euro Zone Bank Borrowing

Selling pressure continued to press the EUR/USD lower on Thursday. Sellers hit the Euro after the European Central Bank reported that Euro Zone banks borrowed 82.6 billion Euro ($106.9 billion) in four-year loans from its new facility aiming at spurring lending to businesses and boosting inflation from its current extremely low levels. The borrowing below 100 billion Euro suggests the new financial aid package may not be enough to stimulate borrowing or consumer spending in the Euro Zone.

 

The GBP/USD moved sharply higher on Thursday, triggered by short-covering and aggressive buying as Scots headed to the polls to vote on a referendum on independence. Although current polls show the “no” votes leading the “yes” votes 52% to 48%, some poll-watchers feel the vote is still too close to call. The price action, however, suggests investors are voting in a big way on a “no” vote. A “yes” vote would be devastating to the British Pound with some experts estimating the Sterling would decline between 5% and 10%.

December Comex Gold futures broke to an eight-month low as traders continued to react to yesterday’s U.S. Federal Reserve monetary policy statement. In its statement, the central bank raised its outlook for interest rates although it stuck to its pledge to hold borrowing costs near zero for a “considerable time” after its quantitative easing program ends in October.

Hedge and commodity fund selling continued to pressure gold as these investors/traders expressed their lack of desire to own gold during a rising interest rate environment. While the fundamentals remain decisively bearish, the technically oversold market may be ripe for a short-covering rally.

Support for November Crude Oil futures continued to erode on Thursday after the U.S. Energy Information Administration reported an unexpected rise in crude oil supply on Wednesday. According to the latest report, crude oil supply rose 3.7 million barrels during the week-ended September 12. Traders had priced in a .9 million barrel draw down.

In other news, the number of Americans filing for jobless benefits dropped to a two-month low. Additionally, housing starts declined in August and the Philly Fed’s index of factory activity in the mid-Atlantic region weakened in September. Its employment component rose to its highest level since the middle of 2011.

Yesterday, the Fed reiterated its “considerable time” wording in reference to the next interest rate hike. It also emphasized that the next rate hike is not tied to a calendar and is data dependent. Despite maintaining its previous stance, traders read the statement as “hawkish” because the central bank said it might increase borrowing costs more rapidly than previously thought.