Article by ForexTime
EUR/USD made a fresh nine-year low at 1.1727 on comments from the EU’s top court which suggested that the Outright Monetary Transactions program is likely to be in line with the EU Treaty, which will give legal backing for sovereign bond QE. Draghi himself also said that the ECB is ready to buy government bonds in an interview with Germany’s Die Zeit, and markets are now pretty much fully factoring a QE announcement at the approaching Jan-22-2015 council meeting, with the only question now being what magnitude of the bond purchases.
German refinancing costs fell on the news to record low in 10-year auction. Germany sold EUR 4.122 billion of 2025 bonds with a coupon of 0.5% at an average yield of 0.52%, down from 0.74% at the previous auction.
In economic news, Eurozone industrial production rose 0.2% month over month, compared to a consensus of 0.0% month over month. October was revised up to 0.3% month over month from 0.1% month over month reported initially and the three months moving average improved to 0.2% from -0.3% in the three months to October. Overall production rose, despite an ongoing slide in energy production, which is encouraging. The data, which points to an improvement in production in Q4 and ties in with the stabilization in confidence indicators.
French Dec HICP inflation fell to 0.1% year over year from 0.4% year over year in November. Expectations had been for a headline rate of 0.0% year over year, so data are marginally higher than expected, but the deceleration still ties in with the general drop in HICP rates across the Eurozone, which is mainly driven by lower energy prices, with the French numbers showing a 10.6% year over year contraction in prices for oil products, versus a drop of 5.1% year over year in November.
Momentum on the EUR/USD remains negative with the MACD (moving average convergence divergence index) printing in negative territory with a downward sloping trajectory. The next level of target support is seen near the 2005 lows at 1.1640. The daily RSI is clearly oversold printing a reading of 22, which could foreshadow a correction.
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