Mid-Day Report: EUR/USD Breaches 1.3 as ECB Cut Rates and Starts Buying ABS

Euro tumbles sharply today as ECB unexpectedly cut the benchmark interest rates by another 10bps to new record low of 0.05% today. The deposit rate was lowered further into negative territory at -0.20%. Further selloff is seen as ECB president Draghi said in the press conference that the central bank will start buying broad portfolio of asset backed securities. EUR/USD drops from as high as today’s high of 1.3153 and breaches 1.3 handle at the time of writing. Dollar is not bothered by the slightly below expected employment data. BoE left interest rate unchanged at 0.50% and maintained asset purchase target at GBP 375b as widely expected. Only a brief statement is released and focus will turn to meeting minutes to be published on September 17.

More on ECB: ECB Announces QE – ABS and Covered Bond Purchases

BoJ left policies unchanged today as widely expected. Interest rate was held near zero and the target of monetary base expansion was kept at an annual pace of JPY 60-70T. The view on economic outlook stayed upbeat as it noted the economy will continue to “recover moderately as a trend”. Meanwhile, the central bank also expected the negative impact of the tax hike to “wane gradually”. Yen is steady after the announcement.

On the data front, US ADP employment rose 204k in August, slightly below expectation of 210k. Initial jobless claims rose slightly to 302k in the week ended 302k versus expectation of 298k. Non-farm productivity rose 2.3% in Q2 while unit labor costs dropped -0.1%. Canada trade surplus widened to CAD 2.6b in July. Eurozone retail PMI dropped to 45.7 in August. German factory orders rose 4.6% mom in July. Australia trade deficit narrowed to AUD -1.36b in July, retail sales rose 0.4% mom in July.

Daily Pivots: (S1) 1.3127; (P) 1.3143 (R1) 1.3165; More….

EUR/USD’s fall resumed after ECB cut interest rates unexpectedly. The pair reaches as low as 1.3013 so far and intraday bias is back on the downside. Current decline from 1.3933 should now extend to 161.8% projection of 1.3993 to 1.3502 from 1.3700 at 1.2906 next. On the upside, break of 1.3159 resistance is needed to indicate short term bottoming. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, overall price actions from 1.6039 is viewed as a corrective pattern. One interpretation is that fall from 1.6039 to 1.2329 was the first leg. Price actions from 1.2329 were the second leg, in form of a triangle. In such view, the fifth leg of the triangle pattern could have completed at 1.3993 already. In other words, the decline from 1.3993 is resuming the fall from 1.16039. Medium term outlook will now stay cautiously bearish as long as 1.3700 resistance holds. Break of 1.2755 key support level will raise the chance of an eventual break of 1.1875 low.

EUR/USD 4 Hours Chart

EUR/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised

JPY
BoJ Monetary Policy Statement

01:30
AUD
Trade Balance (AUD) Jul
-1.36B
-1.77B
-1.68B
-1.56B
01:30
AUD
Retail Sales M/M Jul
0.40%
0.40%
0.60%

06:00
EUR
German Factory Orders M/M Jul
4.60%
1.60%
-3.20%

08:10
EUR
Eurozone Retail PMI Aug
45.8

47.6

11:00
GBP
BoE Rate Decision
0.50%
0.50%
0.50%

11:00
GBP
BOE Asset Purchase Target
375B
375B
375B

11:30
USD
Challenger Job Cuts Y/Y Aug
-20.70%

24.40%

11:45
EUR
ECB Rate Decision
0.05%
0.15%
0.15%

12:15
USD
ADP Employment Change Aug
204K
210K
218K
212K
12:30
EUR
ECB Press Conference

12:30
CAD
Trade Balance (CAD) Jul
2.6B
0.9B
1.86B

12:30
USD
Trade Balance Jul
-40.5B
-$42.5B
-$41.5B

12:30
USD
Initial Jobless Claims (AUG 30)
302K
298K
298K

12:30
USD
Non-Farm Productivity Q2 F
2.30%
2.50%
2.50%

12:30
USD
Unit Labor Costs Q2 F
-0.10%
0.60%
0.60%

14:00
USD
ISM Non-Manufacutring Composite Aug
59.6
57
58.7

14:30
USD
Natural Gas Storage

75B

15:00
USD
Crude Oil Inventories

-2.1M

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