European Central Bank surprised everyone by reducing ECB key rate to 0.25% while it was expected to hold it the same at 0.50%. The Euro contra greenback collapsed instantly from 1.3515 to as low as 1.3297 but then recovered. Overall the common currency has been under selling pressure against other currencies and we would expect that to continue as the newly created instrument, the EuroIndex suggests. The EuroIndex was constructed using PCI GeWorko method.
Euro Index- PCI GeWorko method
Looking to cross European currencies, the EURGBP continued its decline and even drop below key support at 0.8334, alos the EURJPY in earlier trading formed a double top with neckline at 133.67 trading, plunging yesterday below its target at 131.87 to 4-week low at 131.22.
EURJPY
Another release yesterday that proved to be very important for the markets was the surprisingly increase of US GDP in the third quarter by 2.8% while it was projected at 2.0%. The US dollar was further strengthened with the USDJPY climbing to 99.40. However, investors then realized that asset tapering may come earlier than March 2014 and for that reason a US dollar sell off triggered with the USDJPY reversing and falling substantially to 97.63.
USDJPY
Looking ahead, we are highly alerted for the Non-Farm Payrolls. What happened yesterday on the USDJPY could be an example on what can happen today. A stronger than expected NFP could initially lift US dollar but then could add pressure due to the question “will asset tapering start before March 2014?”.