Monday, November 17, 2014

Global economy 'increasingly sobering'

Not only the Japanese economy that fell into recession in Q3 affects the market, but also the euro area since the ECB's economic outlook is 'increasingly sobering' as Mario Draghi said Monday.

ECB's president was mostly dovish because he said the Eurozone lost momentum in summer. Draghi stated that risks remain to the downside and that expectations for moderate recovery remain in place. Draghi said that an expansion of the purchase programme could include government bonds. $EUR/USD fell to 1.2450.

The $EUR/USD fell on Monday after two days of gains after the pair tested November highs at 1.2575 before returning below 1.2500. The $EUR/USD closed at 1.2450. "The 1 hour chart shows price below moving averages and struggling around the 23.6% retracement of the same rally around 1.2455," 

On the $USD/JPY side, the Nippon currency didn't rose as a result of the Japanese GDP despite the general rule: bad news is good news for yen. Adam Button from Forexlive explains the yen behavior very well: "Japanese money is spread around the world in search of higher-yielding assets but when trouble strikes, it returns home. It’s become a knee-jerk reaction in markets to buy the yen and in some ways that’s a self-fulfilling prophesy."

In the currency market, the $USD/JPY initially collapsed from 117.00 to 115.45; however, the pair found buying interest at this level and recovered to move above 116.50. Thus, today the $USD/JPY showed that "this correlation is beginning to show cracks". $USD/JPY is closing at 116.60, positive on the day.

$GBP/USD extended declines for fourth day as the cable's bounce from 1.5600 vanished at 1.5735 and the pair retraced to 1.5635 where it is closing the day. Oil declined to test 74.70; however the black gold bounced to close 75.45. XAUUSD traded sideways around 1,187.00 the whole day.