Sell EUR against the USD and GBP

Our trade recommendation is to sell EUR against the USD and GBP on pullbacks. Levels of resistance to be considered include handles and half-handles, central pivots, fibonacci retracements and moving averages.

Current Market Sentiment:

The major event during the NY session was the ECB Press Conference where President Draghi struck a very dovish tone and clearly indicated the high likelihood of QE being extended in December. He said that the current program will be re-examined in December, that all policy tools are being assessed and that QE will run until the ECB sees a sustained adjustment in the path of inflation. He noted that downside risks to growth and inflation have increased and that the ECB is ready to act if it appears that current policy will not push CPI back to 2%. Not only is an increase of bond buying on the table but also a further deposit rate cut. As expected this signalling of more QE has put immense pressure on the euro with EURUSD having fallen over 250 pips since the conference began, while EURGBP fell 120. We expect weakness to remain in the euro as December approaches and will be looking for pullbacks to sell the currency against various counterparts.

During the Asian session National Australia Bank and then ANZ both announced they will raise the standard variable rate on home loans by 17 and 18 basis points respetively. Now all of the ‘big four’ Australian banks plan to raise their lending rates. There is some speculation that this will put pressure on the RBA to cut to compensate. However, this is beyond the scope of the RBA’s mandate and it is more likely that they will wait to see what, if any, effects this has on the economy. In fact the RBA may welcome the move as it may slow the overheating housing market. The Aussie dipped 20 pips upon the NAB announcement but found resistance at the 72 handle and has since rallied over 50 pips to above 0.7250. Analysts’ opinion are divided about how the RBA will respond to these interest rate hikes at the retail level, with some saying the RBA will remain on hold while others expect a cut in November. The market currently prices about 50% chance of a cut.

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