EURO SURRENDERS PREVIOUS GAINS AS ADP NUMBERS BEAT ESTIMATES

The sterling fell as Theresa May addressed her conservative party members in Birmingham. In her speech, she asked the members to back her Chequers plan and suggested that doing so will increase the chances of a no-Brexit deal or no deal at all. She argued that if the Labour Party, currently headed by Jeremy Corbyn, wins the next election they will press for a new referendum which will likely reverse the current gains. She also emphasized that a no-Brexit deal will be much better than a bad Brexit deal. She also signaled that the end of austerity, that the UK has been experiencing for the past ten years, was near.

The sterling was also under pressure because of the weak services PMI numbers. The numbers showed that in September, the PMI was at 53.9, which was lower than the 54 traders were expecting.

The euro surrendered earlier gains against the USD as concerns about Italy increased. The new Italian government’s plan to increase spending rocked the market yesterday. This happened because the country has the biggest debt to GDP ratio in the European Union (EU). Today, the economy minister, Giovani Tria said that the government was committed to reducing the deficit from 2020 onwards. He said that the deficit will remain at 2.4% for the next three years. In a press conference, he said:

“The deficit will increase compared with the previous forecast in 2019, but then there will be a gradual reduction in the following years.”

The decline in the euro was also because of the economic data. The data showed that the composite PMI for September fell to 54.1. This was lower than the 54.2 traders were expecting. The services PMI remained unchanged at 54.7. Germany’s composite PMI fell to 55 from August’s 55.3 while the French PMI rose to 54. Meanwhile, the retail sales in the region rose at an annualized rate of 1.8%, which was higher than the 1.7% traders were expecting. On a month over month basis, the retail sales declined by minus 0.2%.

The USD strengthened against the major peers after data from ADP showed a jump in private payrolls. The data showed that in September, the payrolls increased by 230K. This was a sharper increase than the 185K traders were expecting. This number came a day before official numbers are released by the labour department on Friday. An increase in wages will provide a case for the Fed to continue tightening. Later today, traders will focus on key Fed speeches. Senior Fed officials will speak at an event in London. Charles Evans, Thomas Barkin, Lael Brainard and Loretta Mester will speak in London while Jerome Powell will speak at an event in Washington.

XAU/USD

Yesterday, gold had its best day since June this year. This happened after the budget crisis in Italy started to rock the market. It reached an intraday high of $1208. Today, the XAU/USD pair lost momentum and fell to an intraday low of 1200. Still, on the four-hour chart below, the pair is trading within the 1180 and 1214 range started a few weeks ago. At this range, traders should have a wait and see attitude because using technical indicators will likely lead to a false breakout.

EUR/GBP

Yesterday, the EUR/GBP pair rose above the important resistance shown below. Today, it rose to an intraday high of 0.8916. It then surrendered those gains after mixed economic data from the EU. On the hourly chart, the pair has now moved below the important neckline of the head and shoulder pattern. This is an indication that the pair will likely continue the downward movement and test the support of 0.8865.

EUR/USD

The EUR/USD pair rose to an intraday high of 1.1592 as it attempted to recover from the past few days’ declines. The upward trend turned out to be a false breakout. It is now trading at 1.1530 as the MACD’s signal line points to more declines. Traders should watch out for yesterday’s low of 1.1505. If it passes this level going downwards, the pair will likely continue moving lower. If it finds support there, it will likely be a good place to buy.