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7 November Forex daily review

Sergiy Zlyvko
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Despite single currency’s sharp drop, dollar index slightly strengthened on Thursday. Before the announcement of central bank’s decision, major currency pairs traded in the corridors of 25 points.

Volatility in the Forex market started to rise after the announcement of Bank of England decision. During last meeting of Monetary Policy Committee of the Bank of England members decided to leave interest rate unchanged at 0.5%, where it has been since March 2009. Assets’ acqusitions retained at the amount of 375 billion pounds. Bank of England decision has coincided with the forecast, so the market immediately switched to the next important event – ECB decision.

At 12:45 GMT single currency lost 210 points against the U.S. dollar on the stops triggered. EURUSD fell from 1.3505 to 1.3296. Contrary to all expectations, ECB decided to lower an interest rate by 0.25% to 0.25%, which led to aggressive dumping of single currency across the market.

We believe that the ECB managed to keep secret of their intentions to lower the rate thanks to Ewald Nowotny. ECB Governing Council member E. Nowotny in the last days of October in an interview to CNBC said: “It is unlikely that ECB will lower the interest rate and the deposit rate, as there are signs of economic recovery in the euro zone”. He no longer spoke of the need to launch a new program to provide liquidity to the banks (LTRO 2) and mentioned that ECB hasn’t tools to combat high rate of the euro.

On October 29 on his statements EURUSD jumped by 50 points to 1.3812. He was able to lull the traders and only weak inflation data supported the talk of a new interest rate decrease.

At a press conference M.Draghi informed that this decision is consistent with the policy of the Bank’s transparency. Draghi has expressed concern about the risk of deflation in the euro area and hinted about the possibility of further rate cuts. At 13:30 GMT he has not been listening, since the beginning of the press conference, a report on the index of U.S. GDP was published. GDP in the 3rd quarter grew by 2.8% against expectations of 2.0%. The figure exceeded market expectations, but does not include damage to the economy caused by partial closure of the U.S. government in October. So today, all eyes will be on the Non-Farm payrolls. The report should give keys, how is the U.S. labor market after a 17-day closure of the U.S. government.

Under Friday’s event in the foreign exchange market after the sharp rise of the dollar, majors occurred impressive kickbacks. EURUSD fell back by 1.5 figure to 1.3449. GBPUSD on a daily basis through the support of cross-rate EURGBP updated intraday high at 1.6113. We expect flat before 13:30 GMT, after – the storm.

At 13:30 GMT a report on the employment market will be published in the U.S. It is expected that in October in nonfarm sector 25 thousand new jobs has been created against 148 thousand in September, the unemployment rate rose from 7.2% to 7.3%.

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