EUR/USD continues its journey south and has dipped below the 1.36 level. The next support line is 1.3570. It has been a long journey from over 1.38, after losing the steep uptrend channel.
The not-too-dovish Fed statement + very disappointing (and especially deflationary) data from Europe pushed it lower. Another small push came from the super strong Chicago PMI in the US.
This is how it looks like:
4 Reasons
- FOMC: The Fed didn’t change its policy and even removed the phrase about “tighter financial conditions”. This implies that the economic environment could be getting somewhat more comfortable for QE tapering. A “Dectaper” is still on the table.
- Deflationary Europe: A long list of economic releases in the euro-zone came out below expectations. German retail sales dropped instead of rising, the unemployment rate rose instead of falling (now at 12.2%) and most importantly for the value of the euro: the year on year inflation fell to only 0.7%. This is far from the ECB’s 2% target. The ECB could either cut the rates or introduce a new LTRO. Note that inflation is weak also in the country where the ECB is headquartered: Germany.
- End of month flows: The dollar was on the back foot during October, mostly due to the US government shutdown and the poor outcome. Perhaps there are now flows to somewhat counter the move.
- Chicago PMI: This is a second or third tier economic indicator. But when the outcome is a huge surprise, it becomes top tier: the indicator was expected to remain almost unchanged at around 55 points, but instead it jumped to 65.9 points. While this figure certainly doesn’t reflect the US economy, it gave another push lower to EUR/USD – the push below 1.36.
The next support is at 1.3570. Resistance is at 1.3650, which was lost earlier in the day. For more, see the EURUSD forecast.
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