Euro falls as investors wait for the ECB decision
The euro declined slightly today after Wall Street Journal (WSJ) reported that Mario Draghi was facing some opposition for a big stimulus package before he leaves. Draghi will leave his position on October 31 and will be replaced by Christine Lagarde. In the previous ECB meeting, Draghi said that he had tasked the economists working at the ECB to come up with a stimulus plan intended to support the EU economy. Opponents to this plan say that the economy is not weak enough to warrant aggressive new measures. This stimulus will come less than a year after the ECB ended its QE program. In addition, opponents say that the proposed interest rate cuts and further QE will leave the bank without any ammunition in case of a global crisis. The ECB is expected to release its rates decision on Thursday this week.
The sterling pared back the losses made earlier today after the UK released positive economic data. In July, data from the Office of National Statistics (ONS) showed that the unemployment rate declined to 3.8% from the previous 3.9%. Wages plus bonus increased by 4.0% from the previous 3.8% while the claimant count increased by 28.2k. This was slightly lower than the consensus estimates of 29.3k. The employment change in the past three months averaged 31k. These numbers came a day after the ONS released the GDP data for the second quarter and the manufacturing and industrial production data for July. These numbers were better than what analysts were expecting.
US futures declined today in reaction to a slew of negative data from Asia. In China, the producer price index declined by -0.8%, which was the lowest it has been in three years. Consumer prices in the country rose by 2.8% in August. In Japan, orders of machine tools declined by -37.1% after declining by -33.0%. This was the lowest level since 2009. In addition, investors reacted to the news that WeWork was being pressured by Softbank to abandon its IPO. This is after another report said that the company was prepared to launch its IPO at a valuation of $15 billion. Further, investors reacted to the growing antitrust issues on American technology companies.
The EUR/USD pair declined as investors started to question the actions of Mario Draghi. The pair is now trading at 1.1034, which is the lowest it has been since yesterday. The pair is trading along the lower line of the Bollinger Bands. The RSI has dropped to the current level of 40 while the Bears Power has continued to decline. The pair will likely continue dropping ahead of the ECB decision on Thursday. The key level to watch will be 1.1015, which is the lower line of the current channel.
After dropping sharply in the morning session, the GBP/USD pair pared back some of those losses. The pair is trading at 1.2350, which is slightly higher than the intraday low of 1.2307. On the hourly chart below, the pair is trading above the 28-day and 14-day moving averages. The pair is also above the blue support line shown below. The pair will likely retest the previous high of 1.2386.
The USD/JPY pair has been on an upward trend since September 3, when it was trading at 105.73. Yesterday, the pair reached a high of 107.48. The pair is now trading at 107.33, which is slightly above the day’s low of 107.22. On the hourly chart, the pair appears to have made a double top pattern. This is an indication that the pair will likely start a sharp downward trend. This could change as the Bank of Japan is expected to deliver its rates decision later this week.