Yesterday the EUR/USD pair fell sharply after the European Central Bank cut its benchmark interest rate from 1.00% to 0.75% (ECB also cut deposit rate to 0.0% from 0.25% and refinancing rate to 0.75% from 1%). Indeed this rate cut was priced in. However, investors were expecting for other policy moves (LTRO or further peripheral bond concessions) that will support growth and ease the ongoing crisis. More weight was put on the EUR after the announcement ECB president Mario Draghi’s press conference. He sounded very dovish during his statement, leaving the door for further easing of rates down the line.
ECB president Mario Draghi said “There is no feeling that we are running short of policy options, we still have all our artillery ready to contain inflationary risks in either direction. It’s clear that when demand is weak, the transmission of price signals to the aggregated economy is muted”. Draghi also said “The rate cuts will reduce the cost of the more than €1 trillion in ECB loans to banks”. “There was no discussion of further unconventional measures at yesterday’s policy meeting. I can’t see that there are measures that are effective in a highly fragmented market” he noted.
Meanwhile, the U.S. economic data exceeded expectations. According to the ADP survey, the private-sector added 176.000 jobs (Industry added 16.000 and services added 160.000). Unemployment claims actually came in somewhat lower than expected (374k vs. 385k forecasted). Data shows that although labor market conditions are not as good as earlier in the year, they are not deteriorating drastically.
The Asian stock markets opened lower today after monetary easing in China and Europe failed to dispel concerns about a slowdown in the global economy. NIKKEI started the day at 9,052.70, previous close was 9,079.80. HANG SENG opened at 19,752.80, previous close was 19,809.10.
EUR/USD is trading at 1.2383 by the time of typing and for today resistances are located at 1.2440 and 1.2500. Support levels are 1.2363 and 1.2300.
GBP/USD is at 1.5527. Resistance levels are located at 1.5570 and 1.5620. Supports are located at 1.5470 and 1.5410.
USD/CHF is trading at 0.9701 by the time of typing and for today resistances are located at 0.9710 and 0.9770. Support levels are 0.9645 and 0.9598.
AUD/USD is trading at 1.0256. Resistances are located at 1.0310 and 1.0355. Support levels are 1.0242 and 1.0220.
The economic calendar is heavy today. Swiss CPI data will be released at 08:00 GMT. U.K. PPI figures will be released at 09:30 GMT. German Industrial Output data will be released at 11:00 GMT. Statistics Canada will release Building Permits and Employment Change reports at 13:30 GMT. U.S. Non-Farm Employment Change report will be released at 13:30 GMT.