Euro under pressure as low inflation and high unemployment suggest ECB easing

November 1, 2013

For the first time in ages it was data and FX markets that were the key movers overnight with the Chicago PMI posting a jump, the size of which, has not been seen for 30 years.

Incredibly the index leapt to 65.9 in October from 55.7 in September and way above the 54.5 the punditry expected. The data looks too big and too good to be true but orders rose, production surged and the backlog leapt all indicating that at least in Chicago the recent political disruption hasn’t hurt. Add in a bit of data from Europe which suggests the ECB should ease and you get a Euro under intense pressure. EU  unemployment (12.2% EU wide) and low inflation (0.7% yoy v 1.1% expected) knocked the Euro for six and it is trading at 1.3580 this morning from a high of 1.3738 yesterday and a loss of 1.11%.

The Euro hit my target last night and I banked a more than 100 point profit but it seems clear since 5am this morning that I acted too hastily and should have let it ride a bit further – dumb dumb dumb.

Euro is now through the fast moving average, through the slow moving average and has hit the 1.36 target we talked about yesterday trading at 1.3580. It looks like the target for Euro now is the trendline you can see in the bottom right of the chart above and which comes in at  1.3420 and now becomes the medium term target. Perhaps not straight line but target nonetheless.

Elsewhere in FX land the US dollar wasn’t quite as dominant basically flat against the Pound (1.6040) around mid range for the day. USDJPY fell 0.19% to 98.31 while the Aussie rallied to 0.9525 after the super strong Building approvals data yesterday before giving back the gains as the Euro slipped and it sits at 94.61 this morning down 0.18% day on day.

The Aussie is a bit lower and well off the high of yesterday after that amazingly large bounce in building approvals that took it up to 0.9525.

0.9353 seems like the target for the Aussie – we’ll see how it looks then.

On stock markets the US rallied initially but it was unable to hold onto the gains with the Dow down 0.42%, Nasdaq off 0.27% and the S&P 500 off 6 points to 1757 but 12 points off the high for a loss of 0.36%. It looks like stocks are definitely rolling over and I’ve been on this track for a week now and the price action of the past few days is certainly reinforcing my belief that stocks have topped or are topping at the moment.

This is a big trend and the S&P 500 is still clearly in a very big uptrend. But equally the top of this trend has in many ways and on multiple occasions proved more resilient than the bottom which seems to be rising. The target remains 1729 at least.

Across the Atlantic the FTSE closed lower, down 0.69%, but continental European markets were all higher with the DAX up 0.26%, the CAC rose 0.61%, while Milan rose 0.97% and the IBEX in Madrid rose 1.32%.

Here at home the SPI 200 contract on the Sydney Futures Exchange rose 3 points.

Looking at the SPI 200 contract the target is 5353 and then 5321 at least.

On commodity markets gold came under pressure again losing $25 to $1323 oz for a loss of 1.86%. Silver tanked losing 4.85% while Nymex Crude fell 0.5% bck to $96.29. On the Ags corn fell 0.46%, soybeans were 0.54% lower and wheat dropped 1.19%.

On the data front the new month brings with it the new run of Manufacturing PMI’s around the world with the AiG performance of manufacturing in AUstralia along with PPI, In China we get both the HSBC and the NBS manufacturing PMI’s before UK, Brazilian and US Markit PMI and ISM data over the course of the evening.

Have a great day and good hunting

Greg

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