EURO FALLS SHARPLY AS INVESTORS’ WORRIES OVER ITALY PERSIST

World markets fell today after a disappointing outlook by the International Monetary Fund (IMF). The body lowered the GDP estimates for the world economy to 3.7% from the previously released 3.9%. This was attributed to the ongoing shocks in the market brought by the US decision to engage in a trade war. Today, the US sent a sharp message to China that future talks were at risk. The White House said that the meeting between the US and China at the upcoming G20 meeting will only take place when a list of concessions from China is delivered to the US. Chinese officials responded that they had a list of concessions but would only release it if the political environment in the United States is positive. US officials believe that China is not ready to offer substantive policy changes.

The euro declined sharply against the USD as traders continued to express their worries about the fiscal position of Italy. Italy is the fourth largest EU economy after Germany, UK, and France. The yields on Italian bonds continued to rise today as the finance minister delivered an address to parliament. The five-year government bonds rose by 2.5 basis points and reached a high of 3%. This is after he said that he expected the business environment to weaken in the near future. The 10-year bonds reached a high of 3.567, which was slightly lower than yesterday’s high of 3.326. Meanwhile, the spread between Italian and Spanish bonds rose to the highest level in 20 years. This was an indication that investors remained optimistic about the Eurozone future.

The DAX declined sharply today after Volkswagen released auto sales for the month of September. In the month, deliveries dropped by 42%. This followed a similar report by BMW, Daimler, and Range Rover. Auto manufacturers have been affected by the new ‘worldwide light vehicles test procedure’ which took effect on September. This measure has affected sales because manufacturers must obtain approvals for all car models they make. They believe that the additional costs will reach more than 1 billion euros. The auto industry is the backbone of the German economy with companies like BMW, VW, and Daimler being some of the largest in the world.

EUR/USD

The EUR/USD pair declined sharply to an intraday low of 1.1440. As it dropped, it passed the important support level of 1.1460. It also dropped below the neckline of the head and shoulder pattern that started to form yesterday. With the trend indicators like the double EMA and the volumes indicator supporting this trend, the pair could continue to decline further. If it does, it will test the important support level of 1.1400.

GER30

The DAX declined today as problems in the auto sector increased. It reached an intraday low of £11,856. This was an important level because it was the lowest level since September 11. It was also the end of the inverted cup pattern that the index has been forming in the past few days. Therefore, traders need to be careful before opening a long or short trade at this point. There is a possibility that the index could move above the £12,000 level, which is the 23.6% Fibonacci Retracement level as it adds a handle to the inverted cup and handle pattern.

XAU/USD

The XAU/USD pair declined today as the US dollar index rose. The pair reached an intraday low of 1183. On the four-hour chart below, the pair has been trading within a narrow range between 1180 and 1213. The current price is along the lower band of the Bollinger Bands. It is also close to the floor of this pattern. There is a likelihood that the pair will continue to move lower, potentially to the 1180 level.