On Thursday the euro/dollar closed down due to a strengthening of the USD. In Asia, euro sales gathered pace. The euro/pound cross with the fall of the pound couldn’t help the buyers. The euro is being sold in other cross pairs.
The GBP cheapened against the dollar by 4.8% to 1.1995 overnight. In points this is 6 figures or 600 points. Traders and analysts are still scratching their heads as to what was the reason for the colossal slide of the pound since there was no news from the UK out last night.
Judging by the informational feeds this morning: all fingers are being pointed at French president Francois Hollande who did speak last night. He announced that the UK should pay a high price for leaving the EU. He declared that a strong position should be taken with regards to the UK, so as not to encourage other member states from leaving.
And since trading volumes are low at night, trading of the pound could have messed with the algorithmic systems which were set to break price levels.
An additional negative for the euro has come from Italy. The Italian prime minister Renzi has decided to hold a referendum on proposed constitutional reforms. If the Italians vote against them, he will probably have to resign. In his place could appear the leader of the 5 Star Movement, a party which believes that the euro is harming the Italian economy. If a referendum is then announced for Italy to leave the EU, the euro will reach parity with the dollar.
Today’s key event is the US labour market report: the NFP. The pound has already set itself for decent figures. Due to the release of the NFP, I haven’t done a forecast. The most important indicator in the report is the data for wage growth. If it ends up higher than forecasted, then even with an overall low NFP, the Fed could drop rates. I suggest you take a look at the daily picture.
Day’s News (GMT+3):
09:00, German industrial production in August;
10:00, Swiss September currency reserves;
10:30, UK September housing price index from Halifax;
11:30, UK output in the manufacturing industry, balance of trade and industrial output for August;
15:30, Canadian employment changes, unemployment level in September, US changes in average hourly wages and NFP for September;
17:00, Canadian index for business activity in September from Ivey, UK Q3 GDP from NIESR, US wholesale reserves in August;
17:30, BoC report on economic conditions and business development, US Fed’s Fischer to speak;
19:45, US Cleveland Fed’s Mester to speak;
22:00, Kansas city Fed’s George to speak and net consumer financing in August;
23:00, BoC’s Wilkins to speak and US Fed’s Brainard to speak.
Intraday forecast: minimum: n/a, maximum: n/a, close: n/a.
Euro/dollar rate on the hourly. Source: TradingView
Instead of looking at the hourly, I suggest you take a look at the daily. See the pinbar for 4th October? I first reckoned that a triangle would be set on it from the 1.1366 peak and that’s why I was looking to buy euro. The euro/pound was also in a union with the euro bulls. Nothing gave a hint of a fall before the payrolls. However the external factors and the pound’s problems have broken the triangle.
Take a look at how the lower limit of the supposed triangle has been broken. Below runs the trend line through 1.1088 from 1.0516 (03/12/15). We could say that this is a key support for the euro bulls. Its loss will lead to a sharp decline of the euro to 1.1035 (100%) and then will open the road to 1.0886 (161.8%). Now to what the targets are. I got these levels using the expansive fibo in the trend. I built it across three points: 1.1366-1.1223-1.1279. A break in the support could be a false one if the euro closes above 1.1130 after the payrolls.