EUR/USD fell sharply as poor Spanish bond sale heightened concerns about funding difficulties by lower-rated euro zone countries and after Federal Reserve minutes reduced expectations for further monetary stimulus in the United States. Comments from European Central Bank President Mario Draghi that the euro zone’s economic outlook is subject to downside risks related to the debt crisis and commodity prices further weighed on the euro, as well as gold. Draghi’s comments came in a news conference after the ECB announced it was holding interest rates at record lows, as widely expected.
The ECB hardened its tone on inflation in yesterday’s policy statement, saying “all the necessary tools are available to address upside risks to price stability in a firm and timely manner. The ECB will pay particular attention to any signs of pass-through from energy prices to wages”. ECB President Mario Draghi told “The remaining tensions in euro area sovereign-debt markets are expected to damp economic momentum. Single monetary policy naturally focuses on maintaining medium-term price stability for the euro area as a whole. It is up to national policy makers to foster domestic developments which support the competitiveness of their economies”.
Most of Europe is going through a contraction. If the peripheral governments can’t make the necessary reforms, in the long term that’s a negative for the euro. The combination of inflation and sovereign debt risks essentially leave the ECB stuck in a gloomy situation. The central bank is likely to keep interest rates and non-standard measures unchanged for the foreseeable future.
The Asian stock markets opened lower today. NIKKEI started the day at 9,737.50, previous close was 9,819.99. HANG SENG opened at 20,479.27, previous close was 20,790.98. Renewed eurozone fears and the Federal Reserve’s indication that it is less inclined to provide additional stimulus knocked U.S. stocks as well. Chief investment strategist at Russell Investment Group, Andrew Pease said “Investors realize those economies are heading into a significant recession. Gains from here are going to be hard work”.
EUR/USD is trading at 1.3155 by the time of typing and for today resistances are located at 1.3162 and 1.3217. Support levels are 1.3100 and 1.3030.
GBP/USD is at 1.5898. Resistance levels are located at 1.5925 and 1.5962. Supports are located at 1.5841 and 1.5794.
USD/CHF is trading at 0.9144 by the time of typing and for today resistances are located at 0.9194 and 0.9232. Support levels are 0.9105 and 0.9054.
AUD/USD is trading at 1.0300. Resistances are located at 1.0322 and 1.0376. Support levels are 1.0276 and 1.0234.
The economic calendar is loaded today. Swiss Consumer Price Index data will be released at 08:15 GMT. UK Manufacturing Production figures will be announced at 09:30 GMT. German Industrial Production data will be released at 11:00 GMT. BoE will announce Official Bank Rate at 12:00 GMT. Statistics Canada will release Employment Change and Unemployment Claims reports at 13:30 GMT. Ivey PMI data will be released at 15:00 GMT.