The first trading day was characterized by a worldwide selloff sparked by slower growth in China. Slowing manufacturing in Asia’s largest economy fueled fears over the possible effects for global growth and led to safe-haven flows into U.S. dollar and Yen. While the euro initially traded higher against the greenback which was mainly driven by expectations of stronger German consumer prices, the common currency came under selling pressure when inflation data fell short of expectations.
The U.S. dollar benefited from safe-haven flows but downward moves in both pairs were only short-lived. GBP/USD broke below 1.4690 but quickly found a support at 1.4663. The EUR/USD dipped below its important support at 1.08 but ended the day comfortably above $1.08. We are still looking for a sustained break of 1.08/1.0780. A next lower target could be at 1.0735/30.
The most important data from the eurozone will be Consumer Prices, scheduled for release at 10:00 GMT today. If CPI data shows any surprises to the upside the euro could be heading towards 1.09 and 1.0935. Before that we will keep an eye on the Labor Market report from Germany, due for release at 8:55 GMT. The British pound marked a short-term resistance at 1.4730/40. We will wait for a significant break above 1.4755 in order to buy sterling towards higher levels. The UK Construction PMI, scheduled for release at 9:30 GMT may help the currency to trade higher.
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