In this article, James Hyerczyk, at FXEmpire.com, explores the two factors driving the euro lower, how the downtrend may impact the global news still on tap, and new concerns that have been raised regarding lower demand for crude oil.
Support for the EUR/USD continued to erode on Wednesday as short sellers increased their bets. The ease at which the market is breaking seems to be indicating that investors have stopped defending it on the way down and have decided to let it seek its own level.
The factor driving the euro lower is that by its actions, the European Central Bank is content with low interest rates and stimulus and doesn’t feel any urgency in trying to defend its currency against the US dollar and other currencies like the British pound.
The second factor is the theme that the Federal Reserve will raise interest rates sometime around mid-year. The general consensus is that next week, the Fed will remove the word patient from its monetary policy announcement. This will signal that a rate hike may be coming as early as June.
The GBP/USD weakened on Wednesday after the release of disappointing UK manufacturing data. The report showed that manufacturing production increased only 1.9% on a year-on-year basis in January, down from 2.6% in December.
On tap later in the session is the National Institute of Economic and Social Research (NIESR) GDP Estimate. Bank of England Monetary Policy Committee member Martin Weale could trigger some volatility with a speech later in the session.
On Thursday, traders will get the opportunity to react to the latest January trade balance figures and a speech by the BoE Governor Mark Carney.
The stronger dollar continued to pressure April Comex Gold. Most of the trading was related to foreign selling pressure. The downside momentum created by the move suggests the market is headed to $1143.40 and possibly $1132.10 over the short-term.
Support from crude oil appears to be weakening. Wednesday’s release of the US Energy Information Administration weekly supply and demand report didn’t help. The report showed that crude oil stocks rose 4.512 million barrels the week ending March 6. Traders were pricing in an increase of 4.5 million barrels.
Besides the increased supply, new concerns have been raised about lower demand due to the start of refinery maintenance and lower demand for heating oil and diesel fuel.
By James Hyerczyk, Analyst, FXEmpire.com
