EURO FALLS SHARPLY AFTER WORRIES OVER ITALY CONTINUE

The euro fell sharply against the US dollar as traders concerns about Italy continued to rise. The new Italian government has pledged to boost spending, which is risky because the country has the highest debt to GDP ratio in the EU. Yesterday, the government borrowing rose to its highest level since 2014. The yields on the 10-year bonds rose by 10 basis points to 3.401 per cent, which was the highest level since March 2014. At the same time, the spread between Italian bonds and German Bunds rose to 2.963 per cent from 2.823 on Monday. The worries of Italy were compounded by the weak economic data. Data from Eurostat showed that manufacturers were facing high costs and factory orders were falling. Between July and August, the producer price index rose by 0.3%.

The sterling fell against the US dollar. Partly, because of the strong US dollar, which gained against most currencies today. Another reason why the sterling declined was because of weak economic data from the UK. Data from the Chartered Institute of Purchasing and Supply (CIPS) showed that activity by the managers in the construction sector fell in September. It fell to 52.1 from the previous month’s 52.8. This was the third month of straight decline with the biggest laggard being the civil engineering sub-sector. It was offset by an increase in the housebuilding and commercial construction.

The Australian dollar declined against the USD after the Reserve Bank of Australia (RBA) left interest rates unchanged and pointed to a sustained level of low interest rates. The bank last adjusted the interest rates in 2016 when it lowered them from 1.75% to the current 1.50%. In the statement, the officials predicted that the economy will grow by 3.0% in 2018 and 2019. They also said that the weaker AUD had helped improve the employment numbers but raised concerns about the slow wage growth. At the same time, they continued to express concerns about falling house prices in Melbourne and Sydney among other cities. In September, house prices fell for the eleventh straight month.

EUR/USD

The EUR/USD pair dropped sharply to an intraday low of 1.1515 where it found some resistance. On the four-hour chart below, this level was the 38.6% Fibonacci Retracement level. The RSI is currently along the oversold level while the short and longer-term EMA’s continue to point to more downward movements. There is a likelihood that the pair will continue to move lower to the 1.1425 level which is also the 23.6% Fibonacci Retracement level.

GBP/USD

The GBP/USD pair declined to an intraday low of 1.2940. This was between the 50% and 38.6% Fibonacci Retracement level. It is also trading along the lower band of the Bollinger Band. This is usually an indication that the downward trend is strong and will likely move lower. If it does, it will likely test the 38.2% Fibonacci Retracement level at 1.2900.

AUD/USD

On the four-hour chart below, the AUD/USD pair has been making a near-perfect downward channel since February this year. Today, it dropped to an intraday low of 0.7157 and inched closer to the lower support of the channel. If the current trend goes on, the pair is likely to continue moving lower until it tests the 0.7080 support.