By Jameel Ahmad, Chief Market Analyst at FXTM
The EURUSD just recorded yet another nine-year low at 1.1823 following additional blows to the EU economic sentiment after further poor data out of Europe today. There were already concerns over the complete discrepancy between the German and Italian unemployment data, with the Eurozone’s greatest challenge yet (deflation) rearing its head shortly afterwards, when it was announced that inflation turned negative with prices falling 0.2% in December.
The data from Europe today just reiterated the already gloomy, but ever-widening weak EU economic sentiment while the Eurozone inflation figures just confirmed the anxiety that markets have been feeling for the past 18 months – that the Eurozone was inevitably heading for a deflation trap.
The pressure on the European Central Bank (ECB) to present new tools from its stimulus toolbox was already intense, with the pressure now heating even further.
European stocks are looking higher on the horrid metric data, with this only ever being attributed to the increasing optimism that the ECB will be forced into pumping more stimulus. Does the economic announcement today all but confirm the introduction of QE from the ECB? No, but it certainly elevates the anticipation regarding how the ECB will react. Either way, the divergence between both economic sentiment and monetary policy between the ECB and the US Federal Reserve is growing at an extensive rate and traders are pricing in further EURUSD declines as a result.
There is still room for the EURUSD to move lower, mainly because there are no expectations for tonight’s FOMC Minutes to reverse its course towards raising US interest rates in the coming months. As long as the Federal Reserve continues repeating the same message providing reassurance to investors that rates will be raised this year, and this leads to a continuation of the aggressive USD rally from last summer, there is a larger cushion for a decline in other currencies.
Gold is already looking lower, and this is likely on the back of expectations that the Federal Reserve will provide reassurances again this evening that it will be raising interest rates. The yellow metal is currently resting just above $1210, while further demand for the USD should pressure metals and lead to moves lower. The deterioration in oil prices is continuing, although this is no surprise considering the overpowering supply and demand equation which is inspiring sellers to continue pricing in further declines. The economic conditions that oil face continue to be aggressively against any hopes for a bounce higher, and until the oversupply issue and global growth concerns diminish, there’s no bottom in sight.
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