Yesterday the ECB cut the main policy rate from 0.15% to 0.05%, and the deposit rate further into negative territory. It also plans to begin a programme for buying private sector assets. Needless to say the euro was substantially weakened following these announcements and we saw a decisive break below the 1.30 level in EUR/USD. Indeed looking at the charts at the moment, with spot around 1.2940, there is no obvious support before the 1.2740 – 50 area. It is clear we’re in the most impulsive phase of the bear trend – the 3rd wave to Elliott Wave practitioners, and it means this is a great time to buy euros if you HAVE to, but if you can wait, well.. you should be able to get them cheaper in the next few days.
Euro weakness has been evident in most of the crosses. However I’m uncertain about whether the EUR/GBP bear trend has resumed or not. A new low, and price action below that level for some time would be what it takes to convince – that has NOT happened yet. Clearly sterling is being dragged along for the euro’s ride, and while the recovery narrative in the UK is still in force, the weakness of wage growth might be enough to give the Bank of England pause for some period of time. If that’s the case then perhaps there is no immediate reason for sterling to appreciate substantially against the euro. Still… as far as I can see… it’s just a matter of time.
The euro cross I find more interesting however is EUR/JPY. The chart looks quite bearish to me, and this would be consistent with my suspicions that USD/JPY is due a correction in the near future. Thus if the Japanese yen has an excuse of its own to temporarily strengthen, while we’re in the midst of an impulsive weakening of the euro, it means EUR/JPY lower. Something to monitor over the next week.
It’s that time of the month again. In the US the key focus will be on the unemployment numbers as Non-farm Payrolls and the unemployment rate are announced. Economists are expecting a modest acceleration in job growth as well as a slight reduction in the unemployment rate. I would guess that as the dollar bull trend is very much still in force, any disappointment is unlikely to seriously harm the dollar, but a positive employment surprise could give it another boost and put further downward pressure on EUR/USD. At this point, particularly given the run up we’ve already seen in US equities, such a positive employment surprise might well set back major equity indices in the short term. They look due a correction of some sort in order for the bull trend to sustain, therefore I wouldn’t be at all surprised to see a move back down to about 1986 at the minimum, and possibly even 1978, but that should (in my view) represent a buying opportunity for a fresh push to new record highs.