Forex Analysis

Euro Nosedives to mid-2017 Lows as ECB Ups Dovish Stance

Summary: The Euro nosedived against the Dollar to its lowest since June 2017 as the ECB said it would keep its ultra-low interest rates until 2020. ECB policymakers thus postponed the timing to their first post-crisis rate hike until next year. The European Central Bank also launched a new round of cheap loans to banks while cutting its growth and inflation forecasts through to 2021. EUR/USD plummeted to 1.11765 from 1.1286, down 1.15% and the lowest since June 21, 2017. As a result of the Euro’s fall the Dollar Index (USD/DXY) hit a fresh 2019 high at 97.710 (96.87 yesterday). Sterling slid against the rising Greenback to finish at 1.3075 (1.3170 yesterday), down 0.82%. The Australian Dollar extended its fall, closing at 0.7010 on weaker-than-expected Retail trade data. USD/JPY however bucked the trend, slipping against the trend on the market’s risk-off stance to 111.58 (111.78).
The Organisation for Economic Cooperation and Development (OECD) downgraded almost every growth outlook for G20 (Group of 20) nations. Stocks and bond yields slumped. The DOW and S&P500 both finished 0.8% lower. The yield on the US 10-year bond closed 5 basis points lower to 2.64%. Germany’s 10-year yield sank 6 basis points to 0.06%.

Trading View - US 10-Year Bond Yield Chart - 08 March 2019
Trading View – US 10-Year Bond Yield Chart – 08 March 2019
  • EUR/USD – The Single currency satisfied the biggest bears, slumping to 1.11765 from yesterday’s 1.1307 opening. Prior to the ECB announcement, the Euro was trading at 1.1285, immediate support. Euro crosses also fell. EUR/GBP slid to 0.8536, 2-week lows. EUR/JPY slumped to 124.670 (126.45 yesterday) before settling 124.90 at the close, down 1.08%. The message from the ECB has been more dovish than expected which will keep the Single currency under pressure.
  • AUD/USD – The Aussie fell under the weight of overall US Dollar strength. Data was mixed with Australian February Retail trade missing forecasts at 0.1% (vs 0.3%). Australian trade data for February improved with a surplus of A$4.55 billion (vs f/c A$ 2.85 billion). AUD/USD slipped to 0.7005, January 3, 2019 lows before steadying at 0.7011.
  • USD/JPY – Against the trend, the Dollar slipped against the Yen to 111.48 overnight lows on the market’s risk-off stance. The ten-year JGB yield was unchanged at -0.02%, unlike the yields of its global peers all of which tumbled. USD/JPY closed at 111.58.

On the Lookout: The spotlight moves toward today’s US Payrolls data to shed light on the health of the world’s largest economy. Meantime we can expect the currencies to consolidate within trading ranges in Asia today.
Today sees a plethora of Japanese data beginning with Household Spending, Current Account (Feb), Bank Lending, Economic Watchers Sentiment, and Final Q4 GDP. China reports on its Trade Balance today (both in CNY and USD). Europe starts off with German Factory Orders, French and Italian Industrial Production and UK Consumer Inflation Expectations. Canadian Employment Change, and Unemployment Rate precede the US February Non-Farms Payrolls, Unemployment Rate, and Wages (Average Weekly Earnings).  The Payrolls number is expected to see 181,000 jobs created from January’s 304,000. US Housing Starts and Building Permits round off the data. On Saturday morning, China reports its CPI and PPI data.

Trading View: Today’s Payrolls and Wages will be closely scrutinised. Wages are expected to climb to 0.3% from 0.1% or 3.3% from 3.2% annually. Jobs creation is expected at +181,000. The market is bulled up on the Dollar as it’s known by some analysts as the “best game in town”. Which is correct in the sense that it gives reference to the global slowdown vis-à-vis the US of A. The US is in a slow positive mode, whereas the rest of the globe are either very slow positive or in contraction mode (as one writer aptly described it). Then this should give the Dollar further support to move higher.
Two facts against that. Market positioning is decidedly long of US Dollar against the Currencies, specially the Euro. Speculators also remain short JPY and AUD. As for the US economy, US companies will find it harder and harder to hit growth targets if the rest of the world is markedly slowing down. The Jobs data is huge and in the spot light tonight. A Jobs Creation of below 180,000., say 120,000 to 150,000 will see the Greenback slide back down into a range.

Daily FX.COM - EUR USD Chart (Daily) - 8 March 2019
Daily FX.COM – EUR USD Chart (Daily) – 8 March 2019
  1. EUR/USDImmediate support at 1.1175 should hold into tonight’s US Payrolls data. The next support level can be found at 1.1130 followed by 1.1080. Immediate resistance lies at 1.1250 and 1.1280. Look for some downside gaps to be filled with consolidation between 1.1180-1.1280. Prefer to buy dips down at recent lows, the market is ultra-short Euro and a bad Payrolls will see a squeeze.
  2. USD/JPY – The Dollar is slip-sliding away and should continue to do so. The fall in the US 10-year bond yield was matched by other global peers except Japan. USD/JPY closed at 111.58. Immediate support can be found at 111.40 followed by 111.10. Immediate resistance lies at 111.80 and 112.00. US 10-year yield closed at 2.64%, approaching 2.60%. Speculators are short of JPY. If the risk-off mode extends due to a weaker-than-expected US Payrolls report, USD/JPY could sink. Likely range today 111.30-111.80. Look to sell rallies.
  3. AUD/USD – The Australian Dollar slipped to just above 0.70 cents (0.7005) overnight. The overall stronger US Dollar weighed on the Aussie Battler. The Australian Dollar last broke the 0.70 cent support level in the early January flash-crash. AUD/USD has immediate support at 0.7000 followed by 0.6970 and 0.9630. Immediate resistance can be found at 0.7050 and 0.7080. Look for consolidation today within a 0.7005-0.7075 range. Market positioning is short Aussie, prefer to buy dips.

Happy Friday, happy Payrolls day and happy trading all.