EURUSD Plunging As Oil Fall Hits ECB Tightening Expectations
EUR Selling Deepens
EURUSD remains heavily sold today with the pair extending its decline amidst the ongoing fall in oil prices. The reaction in EURUSD suggests that lower oil prices are taking a harsher toll on ECB tightening expectations than Fed tightening expectations given that pricing for a Fed hike next month is still above the 50% level. Prior periods of oil weakness have seen USD tailing off as traders reduce their inflation (and therefore, tightening) expectations. However, USD has remained resilient this time with traders judging jobs and inflation to be strong enough currently to likely warrant at least one further hike this year.
Downside Risks Despite Hawkish ECB Commentary
Speaking this week, ECB’s Nagel warned that oil prices remain one of the biggest factors for policymakers currently and signalled that further hikes could still be seen if core inflation pushed higher again. However, for now he shares the view we heard at the recent ECB meeting that no significant second round effects are being seen in the eurozone economy. While this narrative remains EURUSD should continue to trade lower particularly if we see fresh strength in next week’s US jobs data, fuelling a further rise in October rate hike expectations.
Technical Views
EURUSD
The sell off in EURUSD has seen the pair breaking down below the 1.1490 level with price now testing the 1.1404 level. The bull trendline from last year’s lows is sitting just below this level too, creating a key support zone. If we break below here this will be a heavily bearish development for the market, turning focus to the 1.1328 YTD lows next and the 1.206 level as the deeper bear-target.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.