EURO FALLS AFTER WEAK ECONOMIC DATA FROM THE EU
The Japanese yen was little moved today against the USD after Japan released the preliminary reading of the third quarter GDP numbers. The numbers showed that the economy contracted by minus 1.2% - lower than the second quarter’s reading of 3.0%. During the quarter, private consumption slumped by minus 0.1%, which was better than the minus 0.2% that the market was expecting. In addition, industrial production in September declined by -0.4%. This was better than the consensus estimate of -1.1%.
The euro declined against the USD after the Italian government defied the European Union on the budget issue. The government told Brussels that it would move forward with the fiscally aggressive budget proposal. After the announcement, yields on Italian debt rose sharply. The yield on the 10-year bond rose to a three-week high of 3.547. This was an increase of 9.8 basis points. The five-year and the two-year bonds rose by 10.5 basis points and 11 basis points respectively.
Germany reported worse than expected economic numbers. In the second quarter, the economy expanded by an annualized rate of 1.1%. This was worse than the 1.3% that traders were expecting. It was also worse than the second quarter’s growth of 2.3%. On a quarterly basis, the economy slumped by minus 0.2%, which was better than the consensus estimate of minus 0.3%. Meanwhile, data from the European Union showed that the GDP growth remained unchanged at 1.7%. The industrial production increased by an annualized rate of 0.9%, which was higher than the consensus estimate of 0.3%.
Sterling was volatile as trader awaited the emergency UK cabinet meeting during which draft Brexit negotiations were the main topic. Theresa May has already received much disapproval from the cabinet regarding Brexit efforts and if the plan is rejected by Parliament, then it will leave the country with no option other than having a no-Brexit deal. Many Conservatives have accused May of compromising too much. On economic data, the country’s CPU rose by 2.4%, which was lower than the consensus estimate of 2.5%. The core CPI remained unchanged at 1.9%.
The USD weakened against major peers shortly after the consumer price data was released. The closely-followed core CPI rose by 2.1%. This was lower than the 2.2% that traders were expecting. On a MoM basis, the core CPI rose by 0.2%, which was in line with expectations. The general CPI rose by 2.5%, which was also in line with expectations. It was also higher than the 2.3% that was reported in September.
GBP/USD
The volatility on the GBP/USD pair increased as shown by the Average True Range (ATR) indicator below. After yesterday’s gains, the pair dropped to an intraday low of 1.2885. As of this writing, the pair is trading at 1.2950. The pair will likely remain within this range as traders wait for the outcome of the cabinet meeting.
USD/JPY
The USD/JPY pair was little changed today after disappointing economic numbers from Japan. The pair remained within the narrow range started on Monday. The pair’s current price of 113.86 is along the 15-day EMA and slightly higher than the 30-day EMA. The RSI is also relatively unchanged and is currently trading at 53. There is a likelihood that the pair will continue with the previous upward trend and test the important 114.50 level. If it starts moving lower, the pair will test the 113 level.
EUR/USD
After falling initially, the EUR/USD pair rose after the CPI numbers from the US. The Demarker indicator is currently at 0.51 and is headed upwards. The current price of the pair is above the 30 and 15-day moving average. It is likely that weaker inflation will take the pair higher above the 1.1320 level. However, the pair could resume the downward trend as traders realize that lower inflation will unlikely change the Federal Reserve’s mind.