Euro weakens against Dollar, mixed in crosses after ECB hike
Euro weakens against dollar but remains mixed in crosses after ECB raised rate by 25bps to 3.25% today and signals another hike in December. No ‘vigilance’ was used in today’s press conference but Trichet said that rates remains accommodative, and “progressive further withdrawal of monetary accommodation” is warranted. ECB will ‘closely monitor’ developments. Also, when asked about market’s expectation of a December hike, Trichet said he won’t say anything to “correct this sentiment”. This is basically same as what the majority of the market expects. Regarding the EUR/JPY, Trichet said that he’ll stick with what was said in the G7 meeting in Singapore and that is, the JPY should reflect the improving fundamentals. Euro is pressured against Dollar and Yen and strengthens against Sterling and Swiss Franc.
BoE kept rate unchanged at 4.75% today. Minutes will be released on Oct 18. Sterling weakens as some traders closed long positions that’s place earlier to bet on a surprise hike from BoE.
Daily Pivots: (S1) 1.2674; (P) 1.2707; (R1) 1.2746;
EUR/USD spikes higher to 1.2725 briefly but reversed sharply as choppy consolidation continues in early US session. With hourly MACD’s rise limited by zero line and turned south, intraday bias is turned to the downside and further fall is in favor to retest 1.2668 low. As discussed before, break of 1.2661 support will put 1.2630 cluster support (61.8% retracement of 1.2457 to 1.2937 at 1.2640) back into perspective and suggest that corrective fall from 1.2823 might have resumed.
Chance for further rally remains if EUR/USD’s current fall is supported by 1.2661 support level but we’ll need a rise to above 1.2725 to turn short term outlook bullish first and bring further rise to short term falling trend line (now at 1.2790).
Also, outlook of EUR/USD remains mixed as broad sideway consolidation goes. On the downside, break of 1.2630 cluster support is needed to shift favor back to the case EUR/USD is still bounded in a larger scale consolidation that started from 1.2978 which should be followed by retest 1.2457 cluster support (38.2% retracement of 1.1639 to 1.2978 at 1.2467).
On the upside, above 1.2829 will turn focus back to 1.2978 resistance. But still, a firm break above 1.2978 is needed to confirm medium term up trend from 1.1639 has resumed for 78.6% retracement of 1.3668 to 1.1639 at 1.3234. Otherwise, further choppy consolidation could still follow.
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