EURUSD opens the doors to 1.17

The reiteration from the Federal Reserve during the overnight FOMC minutes release that it will be raising interest rates in the coming months is driving the USD higher, with a stronger USD pressuring the Euro, GBP, CHF and JPY on Thursday. In regards to the Eurodollar, the EURUSD is being continuously hammered, with the major currency pair not only saying a hovering at the entry to 1.17 but also at times appearing at risk opening new lows to 1.16. The earlier announcement that monthly German Factory Orders declined by a 2.4% in November further weakened an economic sentiment that at times appears unable to get any weaker.

Following the news yesterday that deflation had set in at the rate of 0.2% annually, the pressure on the European Central Bank (ECB) to do something as early as January is intensifying. The uncertainty remains over the action the ECB will take, but what I am sure of is that economic sentiment and monetary policy from the ECB and US Federal Reserve are diverging even further, and traders are seeing this as an opportunity to price in further EURUSD declines as a result. With these differences in mind and only a potential misfire in Friday’s US NFP to change this in the short-term, there remains far more potential for this pair to drop further.

The one bright spot in the Eurozone today was retail sales increasing by 0.6% on a monthly basis, supporting expectations that retail sales are moving forward, bearing in mind that household budgets are being eased by lower fuel costs.

Traders decided to price in the uneventful Bank of England (BoE) monetary policy decision to leave interest rates unchanged early, with the GBPUSD falling to 1.5033 before the decision had even been announced. The reasoning behind the decline in the pound is quite simple, there is a lack of attraction and this weighs heavily on investor sentiment. Following a week in which UK General Election momentum has picked up, various PMIs have shown signs of slowing domestic activity and the BoE’s dovish views have all pressured the pair into a freefall, it will be up to Friday’s US NFP and stronger USD demand to see if the GBPUSD makes a dash for 1.49.

After bouncing slightly higher today, there is resumed optimism that a floor in the oil markets might be on the horizon. However, I don’t necessarily think the price has reached a floor at all, to me it appears to be another small consolidation. The selling is just taking a brief pause after bearish momentum accelerated in recent days.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

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