Cable hanging onto 1.59 for now…

The GBPUSD has continued to point to the downside on Thursday, with the Bank of England (BoE) leaving interest rates unchanged and further indications of slowing UK economic momentum following data released this morning. Both annualised Industrial Production and Manufacturing Production declined MoM, which is only going to provide further reasons for the BoE to cite a slowdown in economic performances as a reason to leave interest rates unchanged. The 50 pip losses experienced this morning were marginal compared to Wednesday, when the Cable fell by a whopping 160 pips following the UK Services PMI dropping far more than expected.

Looking ahead to Friday, the downside risks will remain for the pair purely due to the reason that there are no indications that Friday’s US NFP will disappoint. Moments ago, US Initial Jobless Claims came in at another impressively low 278,000 with jobless claims continuing to match numbers not seen in nearly 15 years. The ADP employment report already showed that the US economy added 230,000 jobs in September and, when you combine this together with strong US Initial Jobless Claims figures and a robust ISM Manufacturing Index alongside Consumer Confidence at a seven-year high in the run up to the holiday season, there are reasons to be optimistic for a strong employment report tomorrow.

As Mario Draghi’s press conference commences we are already seeing the impact of the ECB President’s comments with the EURUSD already declining to a new 2014 low at 1.2397. Draghi not only reiterated that Eurozone inflation levels are set to remain for the coming months, but also expressed that the ECB is willing to act further in terms of loosening monetary policy. This has inevitably encouraged investors to price in upcoming stimulus from the ECB and, of course, everyone will start talking about QE again. However, many don’t realise how difficult it would be for the ECB to introduce QE (requiring buying government bonds in a 17 nation Eurozone). Instead we are possibly looking at more negative rates being introduced.

It would require a really strong US NFP to send the Eurodollar below 1.23, but potential support for the pair could be found at 1.2344. The US Federal Reserve stepping in to slow the acceleration of a surging Dollar seems unlikely this week, with investors taking profit on the Dollar possible again for next week. Overall, the potential for a strong US NFP on Friday will mean further downside risks for the Eurodollar.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

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