Friday, October 26, 2018

Euro drops lower even though Draghi remains positive, US GDP to be released

Tags
  • Dollar
  • Gold
  • Euro
  • Pound
  • Stocks

MORNING BRIEFING

Mario Draghi throws his support behind the Euro with positive comments regarding inflation and domestic growth but the shared currency still ends the day lower. The Pound edged to the downside in a similar fashion while the Dollar continues to dominate currency flows with gains almost across the board. The Japanese Yen is again the exception to this rule as risk aversion persists in the US markets after tech stocks' earnings miss their marks.

The ECB press conference would naturally have been considered a positive one with President Draghi downplaying the downtick in Eurozone's performance while sticking to a positive tone when discussing his expectations for inflation to pick up going forward. Nevertheless, the Euro didn't react positively to his remarks with sellers staying in control and prices moving lower to hit 1.1350. So where from here? Technically, the Euro shows a technical divergence on the short and medium-term studies and this would suggest a reaction to the upside from these levels. However, this will all depend on the Dollar's price action today with the release of the US GDP figures being the key event of the day. A strong reading will force the Euro to retreat lower with 1.1320 being the target to the downside while a softer printing of the US data will likely prompt Euro shorts to take profits off the table and send the shared currency towards 1.14 again.

The Pound also pushed lower yesterday reaching as low as the 1.28 mark with no progress seen in the significant issues that govern price action for the UK currency. According to a report from NIESR, a no-deal Brexit could result into a 1.6% reduction in the UK's GDP next year highlighting the risks of talks going nowhere. Similarly to the Euro, there's nothing on the calendar related to the Pound today so the US GDP report will dictate price action during the last trading day of the week. For Sterling, the next support is found around the 1.27 figure and a positive round of US data will send prices towards that direction while a potential miss should help the Pound catch its breath and trend towards the 1.29 area again.

Commodities remain in a consolidation phase with both Gold and Oil trading sideways for the past 48 hours. For the yellow metal, the risk aversion seen in the equities' markets has helped set a positive tone but for this to translate into meaningful gains a break above this week's highs is necessary. As such, we may see a slight pullback to the downside before we can witness a new leg higher, unless the US GDP report misses its mark today. Should this happen and we see a break above the $1,240 highs then our target would be around the $1,250 level. Oil still trades on either side of the $67 level looking for direction; a new leg lower will target the $64.50 area while the resistance to the upside stands around the $68.50 level.

Equities are trending to the downside at the end of the week with major tech stocks missing their corporate earnings' marks. Stock traders are heavily worried that earnings in the US might have peaked and this creates another risk for the equity markets. Futures on either side of the Atlantic are pointing lower so it looks likely that today's session will be another leg lower. A positive US GDP report may somewhat alleviate investors' concerns but if the data comes in softer than expected then the rout in equities will intensify.

MARKET EVENTS TO WATCH

  • US Gross Domestic Product - 4.30pm
  • ECB President Draghi Speaks in Brussels - 6pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research

 
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