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Euro reverts to upward correction

FX market highlights:

- The US economy slowed down in QE

- US pending home sales declined in September

- ECB kept monetary policy settings on hold

- The US10Y yield rose to 1.61% in Asian trading

The EURUSD pair spiked 0.67% to 1.1681 on Thursday, October 28. The daily high was recorded at 1.1692. The price traded in a sideways trend until the release of US macro data and the start of ECB President Christine Lagarde’s press conference.

The US economy slowed down. Preliminary GDP data showed that the economy expanded by 2.0% QoQ in Q3, falling short of the median consensus that called for 2.7%. Furthermore, US pending home sales declined 2.3% MoM in September, following a sharp 8.31% increase in August.

The ECB left interest rates on the main refinancing operations, on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively.

The ECB also held the Pandemic Emergency Purchase Programme (PEPP) steady, with a total envelope of EUR 1.85 trln. The Governing Council will continue net asset purchases under the PEPP at least until the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over.

Today’s macro agenda (GMT 3)

  • 10:00 Spain: 3Q GDP
  • 11:00 Germany and Italy: 3Q GDP
  • 11:30 UK: mortgage approvals (September)
  • 12:00 Eurozone and Italy: CPI (October); Eurozone 3Q GDP
  • 15:30 Canada: GDP (August); US: core PCE price index, personal income and spending (September)
  • 16:45 US: Chicago PMI (October); 17:00: Michigan consumer expectations (October)

Current outlook

By the time of writing, major currencies were showing mixed performance. Sterling and the aussie notched up mild gains. Major currencies are correcting after yesterday's gains. Additional pressure on the market comes from a rise in the US10Y yield.

Risk-oriented assets are drawing support from news out of China. Developer Evergrande paid bond interest just in time again, averting default for the second time in two weeks. The $45.2 mln payment is due on September 29. Evergrande has a 30-day maturity date on bonds. The payment looks like yet another attempt to kick the can down the road.  

The focus today is on EU 3Q GDP. During the North American session, investors would do well to watch for personal spending for September and the consumer confidence index from the University of Michigan for October.

Technical analysis

EURUSD is correcting amid a decrease in the EUGBP cross, as well as an increase in the US10Y yield. The price recovered to the trendline that crosses through the 1.2266 and 1.1909 tops. In order to muster a retracement to 1.19, buyers will need to build enough momentum to take out the 1.1700-1.1750 resistance zone. Support today is located at 1.1635. If this level fails to hold, price action could swiftly tumble to 1.1590.

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