The US dollar opened the week with a gap against the EU currencies, but immediately lost its advantage. The negative factor here was the ECB’s mood for further easing of the monetary policy and expansion of the incentives by possible bond purchases. After Draghi’s speech to the Parliament at the end of the previous week it became more possible that during the press-conference at the beginning of December it will be announced how fast and on what terms the European CB will purchase public debt of the EU countries. As it is absolutely clear that the current bond purchases are miserable and are not able to affect the situation with inflation and boost economic growth. During the Asian session the single currency recouped its initial losses just like other EU currencies due to the positive performance of the Asian stock exchanges. These are growing thanks to China’s stimulation of the money supply. However, it should be realized that the Chinese authorities won’t maintain liquidity in the markets for no reason. They won’t ease the policy for no reason as they have already faced the disproportionate growth of housing prices before. Easy money simply started flowing into the real estate, after which the regulator had to tighten the screws, limiting the sales. In other words, don’t be overjoyed about easing in China as it can signal a bad situation in the country’s economy, which hasn’t been yet revealed in the statistical reports. Same with the euro. The ECB’s resoluteness is sure to meet only negative reaction from the euro. So, even a slight improvement of the business sentiment in Europe and Germany is only a reason to sell the euro at a higher price.
Anyway, Draghi doesn’t belong to the ECB, so his comments helped EURGBP adjust its recent growth last week. In its turn, the cable wasn’t affected by testing of new 14-month lows, getting support above 1.5630. As you remember, 1.5600 was an important level for GBPUSD. Last week the pair was fluctuating between this support and resistance at 1.5730. So if in the coming hours the support holds out, we can expect that the pair will return to the resistance of the short-term flat. Anyway, we should also consider the risks of the second GDP estimate, which is published on Wednesday. It is often revised. If it happens this time, the short-term technical picture may be budged in either direction. Breaking through the mentioned support and resistance can only increase the range of the movement.
The pair was consolidating near 117.70 in the second half of the previous week. This week it seems that the pair’s uptrend has resumed. In our opinion, the pair has the potential to grow from the current levels, though it is limited by the fact that USDJPY already made a long way in October and November. It’s quite possible that on drawing near to 119 players will close long positions, being afraid of new claims from the Japanese officials that the yen is already rather weak.
Last Friday the Aussie shot up to 0.8720 an then pulled back to 0.8660. On opening of the markets today bulls again tried to climb above 0.8700, but they failed. The pair was pushed down to 0.8650. If it will be pushed down by 20 other pips, bears may aim at updating lows of the previous week (0.8565) or even November’s low of 0.8540.