FX News – November 8: Euro Drops After ECB Cuts Rates by 25bps

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In a surprising move, the European Central Bank (ECB) announced yesterday that it would cut interest rates by another 25 basis points. The cut brought down rates to 0.25%.

During the press conference that followed, ECB President Mario Draghi said that the cut was within the scope of the bank's forward guidance policy. He said that the ECB was worried that inflation in the Eurozone could persist longer before it reaches their 2% target. Cutting rates would thus help soften the impact of inflation.

The announcement of the cut led to a steep decline in the EUR/USD pair during yesterday's European session. Prior to the announcement, the pair was hovering around the 1.3520 level, but it soon dropped around the 1.3320 zone after that. It has since made a slight recovery during the US session, and is currently trading within the 1.3400-1.3420 range.

Aside from the rate cut, traders are also awaiting the release of the US NFP data later today. As we said yesterday, a lower figure is to be expected since the two-week impasse in the US government in October could affect the actual NFP numbers.

The EUR/USD pair is currently trading at 1.3412, with initial resistance seen at 1.3474, followed by 1.3508. Meanwhile, initial support is at 1.3239, followed by 1.3206.

As for the GBP/USD, the pair swung wildly over the past 12 hours, as it dropped to the 1.6010 area, before kicking back up to 1.6100. This is partly due to yesterday's interest rate decision by the BoE, and the better-than-expected US GDP figures. The GDP Price Index grew by 1.9% in Q3, while the annualised GDP rose by 2.8% during the same period. These figures are better than expected growths of 1.4% and 2.0%, respectively.

The pair is currently trading at 1.6097, with initial resistance seen at 1.6097, followed by 1.6137. Meanwhile, initial support is at 1.5991, followed by 1.5951.

By FX Strategy Team, Published on 8th of November 2013
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