Market Overview

23 October 2015

WEEKLY REVIEW: Tough times for the euro are coming

The euro came under pressure this week on comments by the European Central Bank's (ECB) President Mario Draghi. He said at a press conference on Thursday that the value of the ECB's asset-buying programme will be discussed at the monetary policy meeting in December. He pointed out that the central bank will expand its asset-buying programme if needed to boost inflation toward the 2% target.

The better-than-expected U.S. preliminary manufacturing purchasing managers' index supported the U.S. The U.S. preliminary manufacturing purchasing managers' index (PMI) climbed to 54 in October from 53.1 in September, beating expectations for a decline to 52.8.

This U.S. data could increase the probability for the Fed's interest rate hike this year. But other U.S. economic data should also be better-than-expected in the coming weeks.

Stock markets were driven by Chinese economic data and by Draghi's comments this week.

Stock markets declined after the release of Chinese GDP data. The National Bureau of Statistics said on Monday that China's economy expanded 6.9% in the third quarter, beating expectations for a 6.8% gain, after a 7.0% in the second quarter. It was the weakest growth since 2009.

But Draghi's comments and the People's Bank of China's (PBoC) interest rate cut supported stock markets. China's central bank announced on Friday that it lowered the one-year benchmark bank lending rate by 25 basis points to 4.35%. It was the sixth interest rate cut since last November.

It is likely that stock markets remain volatile on the uncertainty over the Fed's interest rate hike next week.

The foreign exchange market is also likely to remain volatile as market participants will look for further clues for the Fed's monetary policy.

It is likely that the currency pair EURUSD will test the level at $1.1100 or at $1.1200, if the U.S. economic data will negative and there will be no negative news from the Eurozone.

If the U.S. economic data is positive and in case of the negative news from the Eurozone, the currency pair EURUSD may test the low of August 5 at $1.0847.

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