Focus Shifts From U.S. Dollar Rally To Non-U.S. Event Risks

Dear Traders,

We welcome you to a new trading week. While the last week ended with broad based U.S. dollar strength, the greenback could be pushed into the background this week given major event risks such as the European Central Bank meeting on Thursday as well as important economic reports from China and U.K.

Market participants will be closely watching U.K. inflation data on Tuesday. Consumer Price Inflation is forecast to accelerate in September given the fact that sterling’s recent drop boosts inflation. We saw the pound tumbling towards 1.2150 where it found some support for the time being. We anticipate some upward movements towards 1.2225/50 ahead of tomorrow’s report, whereas a break below 1.2130 may boost bearish momentum towards 1.21 and 1.2090.

Euro traders are eagerly awaiting the ECB’s policy decision and the announcement from ECB President Mario Draghi. The market was rocked earlier this month by a report that the central bank could start to taper its bond-buying program of 80 billion euros a month. Draghi could therefore attempt to calm the market by emphasizing that the stimulus would continue. The euro fell below 1.10 and tested the 1.0970-support level on the back of a strong dollar. Whether the EUR/USD could be vulnerable to further losses may hinge on the ECB announcement. If Draghi announces changes to the QE program the euro will react accordingly. For the time being, we consider the 1.0970-50 price area as a support for the pair. On the topside we see a current resistance at 1.1150.

From the U.S. we will have less market moving data this week with the CPI report (Tuesday) being the only interesting piece of economic data. Politically, U.S. presidential candidates Hillary Clinton and Donald Trump will hold their final debate on Wednesday. 

Today, Eurozone Consumer Prices are scheduled for release at 9:00 UTC but this report is not expected to have a major impact on the euro. Furthermore, U.S. Industrial Production figures are due at 13:15 UTC.

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