Late yesterday the EURUSD traded below support at 1.0925 where an interim double
bottom had been holding the downside. The potential for a breakdown through this level is
something that I highlighted on Tuesday. The close below this level at 1.0921 last night was
not technically positive either. However, and so far today the move has only extended to as
low as 1.0905.
Despite that, the simple truth is that the EURUSD is setting fresh multiyear lows because it
entirely deserves to do so. The cost of holding the EUR is still expense and that’s a cost that
has been increased by the ECB further lowering their deposit rate recently. So, the only
question that remains to be asked; is how far can the EURUSD go? Well, in my view there’s
more mileage in the tank and I take serious issue with anyone who thinks the currency is
desperately undervalued.
For sure the EUR is on the weak side in terms of its ultra-long term range, but we should
remember that when the single currency first came into inception some 20 years ago, the
starting point for the EURUSD was at 1.18. I now that because I was trading it in the
wholesale market on its opening day. Granted, since then its been up to as high as 1.60 and
down to as low as 0.82. So, if we take the mid point of that 20 year range we arrive at a
price of 1.21. Hence its clear to see the current price of 1.09 is a little on the weak side, but
in the grand scheme of things we cannot seriously be talking about extremes here yet.
I guess analysts and pundits could argue that point until the cows come home, but I trust I
have made my side of the argument clear? Elsewhere this week the outcome of the
Supreme Court judgement did not have the positive impact for the currency that many
might have thought would have been the case. I did explain that briefly in my last update
and so I think I need not repeat that again here.
Since that verdict was released on Tuesday the pound has fallen backwards again and below
1.23 this morning following some dovish comments regarding the outlook for interest rates,
from the MPC member Michael Saunders. Consequently, the GBPEUR has continued to shy
away from the Fibonacci retracement level I showed you in my last article. That was at
1.1391 or thereabouts. The current price as I write here is close to 1.1250. There is technical
support on the downside at around 1.1235, but if this is breached on a sustained move then
we could be looking at further downside in the short term.
Meanwhile, the Brexit debate rages on and it’s all getting rather ugly to be honest. My own
view is simple; its not about whether we stay or leave any more, its more about the
ramifications of parliament continuing to refuse to act on the result of a plebiscite.
My concern is and always was about that and if nothing else; history should remind us of
what the potential implications of such action are. Like everyone else I want to see that
common sense and decency are maintained at all costs. The problem is though; that the
longer this goes on without a resolution then the more the situation might deteriorate.
Unfortunately, simply too many of our politicians have no regard for anything other than
their own views and vested interests. Theirs is not the role to question the will of the
people, it is to enact the wishes of the people. Is that not what democracy is supposed to
represent?
Important Economic Releases/Events Due Later today
27/09- 1.30pm US August Personal income and Spending Report
27/09- 1.30pm US August Durable Goods Orders Revision
27/09- 3.00pm US University of Michigan Consumer Sentiment Index Revision
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