Last week, all the majors dropped against the US dollar. The biggest loser was the Kiwi dollar (-1.89%), followed by the Aussie (-1.84%), the Swiss franc (-1.18%), the pound (-0.94%), the yen (-0.87%), the euro (-0.85%), and finally the Canadian dollar (-0.81%).
In Friday’s US session, the EURUSD pair dropped to 1.1122 following the release of American GDP data for the second quarter, which at 2.1% YoY, was better than predicted. The preliminary figures show that the economic slowdown is not as bad as expected.
Markets were pleased by this data as we approach the FOMC meeting on the 31st of July. The Federal Reserve is expected to lower the Federal Funds Rate by 25 base points to a range of 2.00 – 2.25%. This rate slash has already been factored in by markets, so Friday’s reaction was based on the assumption that the key rate will be lowered by 25 base points, rather than 50.
Day’s news (GMT 3):
- 11:30 UK: M4 money supply (Jun), mortgage approvals (Jun).
At the time of writing, the euro is trading at 1.1125. I’m predicting the pair to drop to 1.1100. On the 25th of July, when we had an ECB meeting and a press conference with Mario Draghi, we got an intraday range of 1.1101 – 1.1188. I reckon that trading will remain within this range today. The 112th degree at 1.1056 is a reversal level.
Markets have already factored in a 25-base-point reduction to the Fed’s key rate. The ECB is preparing a stimulus package for the Eurozone’s economy. According to Draghi, this will include a rate slash by mid-2020. Because of this, the euro remains under pressure, but this won’t last for long. This is because last week, US President Donald Trump called a meeting during which measures were discussed for weakening the dollar. Trump is concerned about currency manipulation by other central banks. White House economic advisor Larry Kudlow, however, has ruled out intervening on currency markets.