The start of this year commenced in a turbulent fashion with most major headlines directed towards the perpetual declines in oil prices and growing concerns around China’s deceleration while heavily depressed stock markets weighed on global sentiment. These fears and concerns over slowing global growth have most likely punished Europe and it will be very interesting to hear Mario Draghi’s thoughts regarding the latest developments in Thursday’s ECB press conference. For an extended period falling commodity prices have left the Eurozone engaged in an ongoing one-sided battle against stubbornly low inflation levels, while stalling domestic economic growth continues to test the European Central Bank’s credibility. It is widely expected that the ECB will remain on standby today and keep rates unchanged, but Mario Draghi may reiterate his dovish mantra and threaten further QE in an attempt to talk down the value of the Euro.
Since the abrupt appreciation the EURUSD experienced on the 3rd of December following the European Central Banks under delivery to aggressively expand QE, prices have resided in a wide range with a layer of resistance at 1.095 while some support may be found at 1.080. The currency pair is flat on the daily timeframe as prices are trading marginally above the daily 20 SMA with the MACD showing no sign of movement. Mario Draghi may provide the direction this pair has long sought later on today but a breakdown below 1.085 should encourage a further decline towards 1.080 and potentially lower.
Global stocks remain vulnerable
The ongoing pain of falling oil prices and heightened anxieties over slowing global growth have renewed a fresh wave of risk aversion and this has consequently punished the global stock markets. Asian equities remain under intense pressure despite China’s central bank injecting $48 billion worth of liquidity into the financial system in a bid to attain stability. Confidence in the global economy is at frightening lows and this negativity should find its way into the European equity arena which concluded Wednesday’s trading session heavily bearish. This contagion may likely spread to American stocks once again which are already under the mercy of the incessant decline in oil prices.
The FTSE100 is a prime example which illustrates the effects of extreme risk aversion and this can be seen in prices which have plunged to unfathomable lows. Recurrent concerns around China’s ailing economy combined with extreme risk aversion from investors has encouraged bears to attack prices to 5640. This index is extremely bearish and if prices keep below 5900 then a further decline towards 5500 seems like a live possibility.
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