EUR weakens as ECB remains on hold

The ECB remained on hold yesterday as was widely expected, leaving the deposit rate at -0.50% and the refinancing rate at 0.0%. It should be noted that the bank in its decision also stated that it sees rates at present or lower levels until inflation nears the bank’s goal. The bank also reaffirmed that the bond buying program is to begin on the 1st of November at a rate of 20 billion Euros per month. Despite the release as such passing more or less as a non-event with little to no volatility for the single currency, the same cannot be claimed about Mario Draghi’s farewell press conference later on. The bank’s President in his last press conference was quite attention grabbing, as he stated that the inflationary pressures are muted while at the same time downside risks are prominent, painting a more gloomy picture for the area’s economy. Also, at the press conference, Mario Draghi, stated that fiscal policy must do more, Brexit is a geopolitical risk albeit the chance of a no deal Brexit is less likely. However, what also made an impression was his mentioning that the decision to maintain the bank’s stance was unanimous, while at the same time stated that everything since September indicates that the bank’s accommodative stance was correct. The common currency was weakened until the end of the press conference and we could see the EUR slipping further before correcting. EUR/USD showed high volatility yesterday, testing both the 1.1150 (R2) resistance line and later the 1.1105 (R1) support level, finally slipping below the latter, turning 1.1105 (R1) to a resistance level. We could see the pair stabilising somewhat after the drop, yet the US fundamentals and weight the market starts placing on the Fed’s interest rate decision, which is nearing, could weaken the USD side. Should the bulls take over the pair’s direction, we could see it breaking the 1.1105 (R1) resistance line and aim for the 1.1150 (R2) resistance level. Should the bears take over, we could see the pair aiming if not breaking the 1.1050 (S1) support line.

…while the GBP weakens on election worries…

The sterling weakened on Thursday as headlines about an election intensified in the UK, increasing uncertainty. Prime Minister Johnson’s bid for an early election to break the Brexit deadlock, was met with denial from the UK Labor party, as Labor’s leader Corbyn stated that a no deal Brexit must be ruled out first, in order to have an election. For the UK to have an early election, Johnson would need the backing of the Labor Party in order to get the necessary special majority. It should be noted that it’s not the first time that the UK PM threatened with early elections, as currently polls seem to be favoring him and his party. Also Johnson, seems to need a functioning majority, so as to put his deal through Parliament. Otherwise, the new Brexit extension could be utilized by his opponents to change the content of his deal with the EU dramatically. We expect the pound to remain Brexit driven and eyes fall on the EU summit which is to decide the new Brexit extension and its length. Cable dropped yesterday, breaking the 1.2885 (R1) support line, now turned to resistance. We maintain the view that the pair is to remain Brexit Driven, yet US fundamentals surrounding the Fed, could change its direction. Should the pair remain under the selling interest of the market, we could see it breaking the 1.2760 (S1) support line, while on the flip side, should it find fresh buying orders along its path, we could see it breaking the 1.2885 (R1) resistance line, aiming for the 1.3010 (R2) resistance level.

Other economic highlights today and early tomorrow

In a light Friday, during today’s European session, we get from Germany the GfK Consumer sentiment for November and the Ifo business climate indicator for October. In the American session, the release of the Michigan consumer sentiment for October and the Baker Hughes oil rig count are singled out. As for speakers Riksbank’s Ohlsson is speaking today.

EUR/USD 4 Hour