The US Dollar inched higher on Tuesday after the speech of the ECB President Mario Draghi, who hinted for cutting rates remain part of the toolkit. He also opened the door to more QE and other measures. EUR/USD has dropped below 1.1200 immediately after the speech but later recovered slightly up.
The Australian dollar collapsed to its lowest level since early January, squeezed by rising expectations for a lower interest rate from the country’s central bank and the expectation of a further slowdown in China’s economy, which is Australia’s largest trading partner.
Meanwhile, the British pound dropped to its 5-week low amid worries that Boris Johnson could replace British Prime Minister Theresa May and could put Britain on the path to Hard Brexit.
The US Dollar Index, which measures the strength of the greenback against six major currencies, is on the rise today to 97.66. The growth comes amid the retreat of the Euro, which has more than 50% weight on the index.
The index continues to hover around the 55-day and 21-day SMA and needs to clear this area on a sustainable basis to allow a test of March high at 97.71, considered the last defense for a move to the 98.00 area and beyond.
In the meantime, the 200-day SMA and the multi-month support line in the mid-96.00s should hold the downside and keep the constructive bias intact.
The strong volatility in currencies over the last week, and especially in the so-called commodity currencies and the emerging markets currencies under pressure, reflects mass moods to avoid investor risk. The trade tensions between the US and China and the growing geopolitical tensions in the Middle East undermine the moods of risky operations.
The EUR/USD pair has dropped from around 1.1230 to nearly 1.1200. European Central Bank President Mario Draghi has said that cutting interest rates is part of the bank’s toolkit, completing a dovish reversal by the Frankfurt-based institution.
He adds that additional stimulus may be needed if the situation does not improve. Mitigating measures are part of the tools in order to fight any side effects. Draghi said that APP (which is the ECB’s bond-buying scheme) still has considerable headroom.
The pair lost further momentum after the ZEW survey disappointed expectations for the current month, in line with previous gauges of sentiment and confidence in the region.
In fact, the Economic Sentiment in the broader Euroland fell to -20.2, while the same gauge in Germany tumbled to -21.1. In addition, German Current Conditions surprised to the upside at 7.8, albeit easing from May’s 8.2.
The EUR/USD paid is facing immediate contention at 1.1181 (low June 18) seconded by 1.1176 (monthly low March 7) and finally 1.1115 (low May 30). On the upside, a breakout of 1.1347 (high June 7) would target 1.1356 (200-day SMA) en route to 1.1448 (monthly high March 20).
Concerns about Brexit struck the British pound, which collapsed to 5-month low trading below 1.2550, close to the fresh five-month low of 1.2511. Conservatives will vote in the second round of their leadership contest.
Former Foreign Minister Boris Johnson received on Monday support for his campaign to replace Theresa May as Prime Minister of the UK.
This development of the leadership post in the Conservative Party of the United Kingdom shook the markets as Boris Johnson, who was among the initiators of the official campaign to leave the European Union in the referendum in 2016, promised to bring the UK out of the EU with or without an agreement.
The British pound can be squeezed again in the coming days due to upcoming events that may change the market, including Consumer Inflation Statistics and retail sales figures to be announced on Wednesday and Thursday respectively, as well as the Bank of England’s position on interest rates on Thursday.
The Relative Strength Index on GBP/USD pair is below 30 – pointing to oversold conditions – and implying a bounce. However, any such bounce may be temporary as downside momentum remains strong. Initial support awaits at 1.2510 which is the fresh five-month low seen early in the day. Further down, 1.2475 was a stubborn support line in December 2018 and 1.2445 was the low point in early January.
Initial resistance awaits at 1.2558 which was the previous 2019 low set in late May. Next up, 1.2605 capped GBP/USD on Monday and serves as resistance. 1.2640 which provided support in early June and 1.2660 that held it up last week are next.