EUR/USD week 41

The EURUSD increased 0.0035 or 0.30% to 1.1799 on Friday October 9 from 1.1764 in the previous trading session.

ECB President Christine Lagarde warned Tuesday that Eurozone output would not return to pre-COVID-19 levels until the end of 2022 and that the central bank would use additional monetary policy measures, including cutting interest rates further, to re-boot the flagging economy. Speaking with the Wall Street Journal earlier, Ms. Lagarde noted that other policy measures were likely to be used before taking interest rates further into negative territory and that the central bank stood ready to address the situation ‘as it develops’.

Ms. Lagarde’s comments did little to move the Euro although her comments are likely to cap any upside in the single currency going forward. The current level of the Euro is causing the central bank a problem by pushing down on inflation to an uncomfortable level. Last week the preliminary German inflation data for September fell to -0.2% y/y, while the Euro Area reading fell to -0.3%, the steepest fall since April 2016. Additional monetary stimulus will weigh on the Euro and any weakness in the single currency will help combat negative price pressures.

EUR/GBP has traded in a sideways pattern since early-to-mid May, constrained in part by ongoing, and gridlocked EU/UK trade talks. These talks are now nearing their end game and the mood music is marginally more positive for a deal by the end of the month. The pair currently trades around 0.9085 and sit on support off the 50-day simple moving average, while the upside in the short-term is capped by the 20-dma. The pair also shows a pattern of lower highs over the last month and a break below support would see 38.2% Fib retracement at 0.9035 tested ahead of the September 28 low at 0.9028 and the round number 0.9000 level. If sentiment remains negative, the 200-dma at 0.8930 guards the 50% Fib retracement at 0.8891.

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