ECB delivers rate cut, signals for more easing to come

On a monetary level, we highlight ECB’s interest rate decision to cut rates as was expected, and signal that more easing is to come. The bank in its accompanying statement highlighted that “The disinflation process is well on track”. The decision tended to be more or less expected, given that economic activity in the Euro Zone is faltering. In her speech, ECB President Christine Lagarde highlighted the risks deriving from political instability in the Euro Zone, especially Germany and France. Also, she touched on the possibility of Trump imposing tariffs on European products exported to the US, but in a more general sense highlighted that “the risk of greater friction in global trade could weigh on Euro-area growth”. Hence, we highlight the release of Euro Zone’s preliminary PMI figures for December on Monday’s European session. Overall at the current stage we see the case for fundamentals to weigh on the single currency.

EUR/USD despite the bearish tendencies of the past six days, remained well between the boundaries set by the 1.0600 (R1) resistance line and the 1.0450 (S1) support level. Hence for the time being our sideways motion bias is maintained. The RSI remained at relatively low levels, implying the presence of a bearish predisposition of the market. Yet, we would switch our sideways bias in favour of a bearish outlook in the event of a clear break below the 1.0450 (S1) support level, with the next possible target for the bears being the 1.0330 (S2) support line. Lastly, for a bullish outlook we would require a clear break above the 1.0600 (R1) resistance level, with the next possible target for the bulls being the 1.0730 (R2) resistance line.

The Aussie remained relatively unchanged yesterday against the USD, yet fundamentals related to China tend to weigh. Uncertainty rises with Trump entering the White House and threatening to impose tariffs on China, Australia’s biggest trading partner. Please note that China seems to be mulling in devaluating its currency, a scenario not looked upon favorably by the incoming US administration. On a fundamental level, our focus remains on China given the lack of evidence of a confident recovery for the Chinese economy. Yet PBoC is from now on expected to maintain an “appropriately loose” monetary policy and the Chinese government a more proactive fiscal policy. Hence we highlight on Monday from China, the release of November’s Urban Investments, industrial output and retail sales and on Friday PBOC’s interest rate decision. Also, we note from Australia the release of the preliminary PMI figures for December in search of indications for economic activity in Australia. Should we see the indicators’ readings falling further implying a deeper contraction of economic activity, we may see the release weighing on the AUD.

AUD/USD continued its downward motion testing the 0.6350 (S1) support line. As long as the downward trendline guiding the pair since the 1^st of October remains intact, we maintain our bearish outlook for the pair. Should the bears maintain control as expected, we may see AUD/USD breaking the 0.6350 (S1) support line and start aiming for the 0.6270 (S2) support base. For a switch towards a sideways motion bias we would require the pair to break the prementioned downward trendline, signaling an interruption of the downward motion yet respect the 0.6440 (R1) resistance line. For a bullish outlook we would require AUD/USD to break the 0.6440 (R1) resistance level, paving the way for the 0.6550  (R2) resistance hurdle.

Other highlights for the day:

Today, we note the release of the UK’s GDP rates for October, the UK’s manufacturing output rate for October, Norway’s GDP for October, France’s final HICP rate for November and the Eurozone’s industrial production rate for October. In Monday’s busy Asian session, we note Australia’s and Japan’s preliminary PMI figures for December, Japan’s machinery orders rate for October, China’s urban investment, retail sales, and industrial output rates all for the month of November.

EUR/USD Daily Chart

• Support: 1.0450 (S1), 1.0330 (S2), 1.0220 (S3)
• Resistance: 1.0600 (R1), 1.0730 (R2), 1.0835 (R3)

AUD/USD  Daily Chart

• Support: 0.6350 (S1), 0.6270 (S2), 0.6170 (S3)
• Resistance: 0.6440 (R1), 0.6550 (R2), 0.6640 (R3)

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

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