Euro declines after Mario Draghi warns of European slowdown
Global stocks jumped today after the People’s Bank of China (PBOC) announced plans to inject more than $84 billion to stimulate the economy. The country is also embarking on a large tax cuts program. All this is happening at a time when data from the country point towards as slowing economy. This week, economic indicators showed that imports had fallen sharply in December. Yesterday, numbers showed a decline in house prices and two weeks ago, the numbers showed a slump in the manufacturing PMI. Therefore, investors are hoping that the stimulus package will stimulate growth as talks with the US advance. Stocks were also boosted by US earnings. Bank of America reported EPS of $0.70 and revenues of $22.74 billion. This followed the positive results from United Health, JP Morgan, and Citi.
The sterling was little moved against the USD as traders waited for the vote of no confidence against Theresa May. The vote was requested by opposition leader, Jeremy Corbyn and will take place later today. Investors are trying to assess the likelihood that the UK will leave the EU without a deal. Today, EU’s chief negotiator, Michel Barnier said that the deal presented by May represented the best compromise between the two sides. In the UK, Andrea Leadsom said that the UK will not seek an extension of the March 29 deadline. The country also released mixed economic data. The core CPI in December increased by an annual rate of 1.9%, which was better than the expected 1.8%. The headline CPI rose by 2.1%, which was in line with the consensus estimate. The RPI growth of 2.7% missed the consensus estimate of 2.9%.
The euro declined against the USD as investors reacted to the news on Brexit. They also reacted on a statement by Mario Draghi, who said that the European economy will likely slow in 2019. In recent weeks, data from the region has been weaker than expected. Today, the German CPI in January came in at 1.7%, which was in line with expectations. The same was true with the CPI numbers from Italy.
This week, the EUR/USD pair has been on a downward spiral as investors’ concerns about the health of the European economy increased. The pair dropped from a high of 1.1570 to the current price of 1.1377. On the hourly chart, the current price of 1.1388 is below the 21-day and 42-day EMA while the RSI remains above the oversold level of 30. The Average Directional Index (ADX) has declined to the current level of 21. The pair will likely continue moving downwards and possibly test the important support level of 1.1330.
The GBP/USD pair was a bit volatile today as traders tried to assess the impact of yesterday’s vote. The pair traded between 1.2896 and 1.2840. After dropping yesterday, the pair’s Average True Range (ATR) index continued to rise today as the gap between the three bands of Bollinger Bands narrowed. With all the news coming out, the pair will likely see some more volatility in the coming days.
The Nasdaq index continued the upward trend started on December 21 ahead of Netflix earnings, which will come out tomorrow. The index reached a high of $6675. On the four-hour chart, the current price is above the 21-day and 42-day EMA while the RSI is nearing the overbought level of 70, while MACD is above the signal line. While the index could continue moving up, there is a likelihood that it will retest December lows.