EURUSD teases an entrance to 1.10

The EURUSD is currently teasing a return to the eleven-year low at 1.1097 after falling to 1.1115 moments ago. The Euro fall has been driven by the acceptance that issues such as stagnant economic growth and deflation risks are not going to be exiting the horizon anytime soon. There are just so many different factors weighing on the EU economy that it was always just a matter of time before the currency caved in to the continuous pressure. Aside from concerns over stagnant economic growth and deflation risks, ECB President Mario Draghi is going to be unveiling further details regarding the QE program this Thursday in Cyprus. Additionally, the contradiction in reports over whether Greece will be able to meet its debt obligations are weighing on investor sentiment.

There was some increased optimism over slightly stronger economic data coming out of Europe, but this was not going to conclude the EURUSD downtrend. There were two major issues that led to the ECB finally launching the long-talked about QE program, this being stagnant economic growth and deflation risks. These risks alongside the ECB easing policy to combat them were also the major factors behind the EURUSD dropping from 1.39 to 1.10 in nine months. QE is also starting this month, which means that the ECB has moved into a new era of easing monetary policy with more indications of future currency weakness.

The EURUSD charts are continuing to show one-way traffic, with the only reason for the consolidation in February being investors showing caution while the negotiations over the Greece bailout went down to the wire. While the Eurozone unemployment rate falling to its lowest level in over two years was a pleasant surprise, the only good news for Europe right now is that the lower oil prices are easing budgets, alongside indications that the German economy has passed through the unexpected period of turbulence suffered during the second half of last year.

The GBPUSD losing streak looks set to extend for the third successive day after sector activity in services, a key UK GDP contributor, dropped below expectations. The UK Services PMI for February slipped to 56.7 and while this is still in substantial expansion territory, it has erased optimism that the UK economy was looking at scoring its second successive month of successful PMI results after both construction and manufacturing data earlier this week surpassed forecasts. The GBPUSD rebound to 1.55 encountered last week appears to be a technical correction of January’s losses, and further gains from this point will at times be limited to USD weakness. The UK election is now just two months away and I can envisage there being some hesitation from investors to purchase the currency beforehand.

The USDCHF is continuing to rise, with the pair now climbing to 0.9631. As long as there is not a widespread USD correction, which is unlikely while expectations remain high for the Federal Reserve to begin raising US interest rates later this year, the USDCHF looks set to reach parity in April. Traders completely ignored Switzerland’s GDP for the last quarter coming in stronger than expected, due to the eventuality that GDP data for the first half of 2015 is going to be negatively impacted by the stronger CHF. The comments from SNB President, Thomas Jordan, that the CHF was “clearly overvalued” have increased expectations that the SNB will ease monetary policy to weaken the CHF in the coming months, while also increasing the likelihood that the CHF will continue to devalue against its trading partners.

CHF weakness is not the only continued trend being seen in the currency markets, with traders also having fun with the Turkish Lira at present. A complete combination of different factors are contributing to the Turkish Lira repeatedly declining to new lows against the USD. For one, the Turkish Central Bank is one of the many central banks easing monetary policy. We then have President Erdogan sparing no punches in publically criticizing the central bank, explicitly stating that interest rates should be lower than they already are. On top of that, declining inflation and manufacturing activity falling to a seven-month low is leading to suspicions the Turkey Central Bank will continue to cut rates.

Gold is continuing to range between $1220 and $1190, as it has done for the past fortnight. Traders are just waiting for this Friday’s key NFP report from the United States before deciding which direction Gold could be heading next. An upside break above $1222 is required to change the short-term sentiment to bullish, which also means there will need to be a negative USD reaction to Friday’s NFP. In the event that the NFP continues to show that the US labour market is moving forward and encourages rate hike optimism, I would expect the longer-term bearish bias to be reinstalled. $1190 appears to be the temporary floor, but a downside break below here increases the likelihood of some sudden losses.

The oil markets have opened trading cautiously on Wednesday. Traders are keenly awaiting the US Crude Inventory report, where further indications of US inventories once again jumping beyond forecasts would likely weigh on oversupply concerns. Both Brent Crude and WTI Crude are still ranging, with the $62 area still being seen as the higher range for Brent Crude and the $51 area a possible top for WTI Crude. The bulls really need to extend above this area to push a more bullish bias, otherwise the risks of a sudden pullback due to the extent of concerns over the aggressive oversupply are still present.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

Follow Jameel on Twitter @Jameel_FXTM

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