Euro Collapses, Trading at 2-Year Low Against the US Dollar (Euro Open)

The Euro collapsed in overnight trading, testing below 1.28 against the US Dollar. The British Pound followed suit, with GBPUSD trying below 1.63. With a thin economic calendar ahead in European trading hours, little stands in the way of current momentum.

Key Overnight Developments

• Interest Rate Cuts to Continue Australian Inflation Hits 7-year High
• Dollar Continues to Punish Majors: Euro Tries Below 1.28, Sterling Below 1.63

Critical Levels 

The Euro collapsed in overnight trading, with EURUSD testing below the 1.28 level. The British Pound followed suit, with GBPUSD trying below 1.63.

Asia Session Highlights 

Australia’s annual inflation soared to the highest in 7 years as the Consumer Price Index printed at 5.0% in the year to the third quarter. Still, as we mentioned in our Forex Weekly Outlook, the Reserve Bank of Australia will be undeterred in their campaign to slash borrowing costs. RBA chief Glenn Stevens issued a hefty 100-basis-point rate cut earlier this month, saying that “the next CPI is likely to show an increase of around 5%...but the Bank remains of the view that inflation will start to decline in 2009.” Indeed, markets are pricing in a 0.50% rate cut when the bank announces policy on November 4th with at least 125 basis points in overall easing expected over the next 12 months.

Euro Session: What to Expect 

Italy’s Retail Sales are expected to have stalled in August, with receipts shrinking -0.7% on an annualized basis. Retail receipts have fallen over 32% so far this year. Private consumption is easily the largest contributor to overall economic growth so tepid spending does not bode well for the Euro Zone’s number-three economy. Market expectations of interest rate cuts from the European Central Bank have nearly doubled since last week, with traders pricing in at least a 0.25% cut at the next meeting on November 6th, with a total of 150 basis points in easing expected over the next 12 months.

In the UK, minutes from the last Bank of England policy meeting are on tap. Mervyn King and company slashed borrowing costs by 0.50% when they participated in a coordinated rate cut by top central banks designed to shore up ailing credit markets. Market expectations are leaning towards another 50 basis point cut at the next meeting on November 6th, with 150bps in easing over the next 12 months.

Related Articles:

Euro Dollar Could Fall to 1.28
US Dollar Remains the Currency of Choice As Traders Avoid Risk

To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.