Daily Commentary
 | 03/10/2018

USD stands tall while Euro weakens on Italian drama

The common currency dropped yesterday as, Italian politicians insisted in keeping a 2.4% deficit in their budget for 2019. The confrontation between Rome and Brussels became more intense as the Euro-area finance ministers had a meeting yesterday, where the Italian minister had a cold reception. Statements made by an Italian lawmaker that most of the country’s problems would be solved if it had its own currency, did not help much, despite them being retracted later on. The common currency later regained its losses against the USD, however volatility could rise again should there be further headlines on the issue.

EUR/USD dropped yesterday breaking the 1.1525 (S2) support line, however recovered later, regaining its losses and testing the 1.1577 (S1) support line. Technically, it should be noted that the pair broke the downward trend-line, incepted since the 26th of September, hence we switch our bearish view in favor of a sideways movement. Should the bears take over the pair’s direction we could see it breaking the 1.1577 (S1) support line again and aim if not break the 1.1525 (S2) support level. Should on the other hand the bulls take over, we could see the pair breaking the 1.1623 (R1) resistance line.

Further developments on Brexit expected

As the Tory conference draws to an end today and May is expected to speak, preparations begin for an intense round of negotiations between the EU and the UK. The main aim is to reach a deal by mid-November and both sides declare willing to reach a deal. The UK is looking to a more detailed response regarding the Irish border issue from the EU, while EU diplomats expect the outline of the exit agreement to emerge by the middle of next week. Further headlines could be expected on the issue giving rise to volatility for GBP pairs.

Cable dropped yesterday, breaking the 1.3030 (R1) support line (now turned to resistance) and tested the 1.2965 (S1) support level. For our bearish view to change in favour of a sideways movement scenario, we would require the pair’s price action to clearly break the downward trend line incepted since the 26th of September. Should the pair continue to be under selling interest, we could see it breaking the 1.2965 (S1) support level and aim for the 1.2910 (S2) support barrier. Should the market favour the pair’s long positions we could see it breaking the 1.3030 (R1) resistance line and aim for the 1.3080 (R2) resistance hurdle.

In today’s other economic highlights:

In the European session we get from Turkey the CPI rate for September, from the Eurozone the Final Markit Composite PMI along with UK’s services PMI, both for September and Eurozone’s Retail Sales growth rate for August. In the American session we get the ADP Non-Farm Employment figure for September, ISM Non-Mfg PMI for September and the EIA weekly crude oil inventories figure. As for speakers, Chicago Fed president Charles Evans, Richmond Fed President Thomas Barkin, Philadelphia Fed president Patrick Harker, St. Louis Fed President James Bullard, FOMC member Lael Brainard, FOMC member Loretta Mester and Fed Chairman Jerome Powell speak. Please note that in the commodities markets, as analysed and anticipated in our gold weekly outlook, gold prices rallied yesterday, while should you be interested in fundamental news and technical analysis, regarding oil, please refer to our oil weekly outlook later today.

GBP/USD 4H

Support: 1.2965 (S1), 1.2910 (S2), 1.2680 (S3)

Resistance: 1.3030 (R1), 1.3080 (R2), 1.3150 (R3)

EUR/USD 4H

Support: 1.1577 (S1), 1.1525 (S2), 1.1480 (S3)

Resistance: 1.1623 (R1), 1.1675 (R2), 1.1745 (R3)