The European Central Bank has surprised financial markets by announcing that it will end its QE programme by the end of this year.
Under plans revealed today, the central bank will halve the size of monthly asset purchases from €30bn in September, to €15bn from October until the end of the year. One would have expected the Euro to appreciate aggressively following this historical decision, but the currency has simply collapsed like a house of cards against all its major counterparts. The driving force behind the Euro’s selloff could be the fact that the ECB has pledged to keep interest rates at ultra-low levels, "at least through the summer of 2019". Interestingly, Mario Draghi expressed optimism over inflation and highlighted “solid and broad-based economic growth” in the Eurozone. However, his cautious comments on how the Eurozone economy still needed “significant monetary stimulus” left a dovish aftertaste.
Taking a look at the EURUSD, the currency pair has become extremely bearish with prices sinking towards 1.1680 as of writing. The Euro is poised to conclude horribly depressed this week as investors exploit the downside momentum to push prices lower. The breakdown below 1.1700 could encourage a further decline towards 1.1630.
Dollar boosted by robust retail sales
This is certainly shaping up to be a positive trading week for the Greenback as heightened US rate hike expectations and encouraging economic data supported the currency.
According to official reports, US retail sales posted their strongest rise in six months by surging 0.8% in May. Sentiment towards the US economy is likely to receive a boost following the positive data, especially when factoring in how retail sales are viewed as a leading indicator of economic growth. With the growth outlook for the United States expected to remain robust and inflation accelerating, the Fed could raise rates faster than expected. The prospects of higher US rates are likely to continue supporting the Dollar.
In regards to the technical picture, the Dollar Index remains firmly bullish on the daily charts. A decisive breakout above 94.50 could encourage an incline higher towards 95.00.
Sterling surrenders to strengthening Dollar
Sterling’s abrupt appreciation following the impressive UK retail sales report for May was short-lived thanks to an aggressively appreciating Dollar.
Although the jump in UK retail sales was encouraging and eased concerns over the health of the UK economy, this was not enough to defend the Pound against a resurgent Dollar. With Brexit uncertainty still a recurrent theme that lingers in the background and expectations shaky over the BoE raising rates in August, Sterling has scope to weaken further.
The GBPUSD remains under pressure on the daily charts. A breakdown below 1.3300 could invite a decline towards 1.3210.
Commodity spotlight – Gold
Gold bulls have crashed into a brick wall which has come in the form of an appreciating US Dollar.
With the Greenback likely to remain supported by US rate hike expectations and improving economic data, Gold may be poised to extend losses. Market players will continue to closely observe how price behave around the psychological $1300 level. A failure for bulls to maintain control above this level could result in a decline towards $1280.
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