Fundamental Analysis

Euro Trembled on German Election Results

Typography

Earlier today the euro fell around 0.2% against its counterparts and 0.6% against the US dollar, following the German election. Angela Merkel remains in the driver's seat but the far right AfD party gained much more support than anticipated in recent surveys, though the formation of a coalition still remains to be seen. Weakened support for Markel's conservative alliance with only 33% of the vote and the rise in popularity of anti-immigration nationalist party makes it hard to consider it as a victory, at least for the financial markets. The President of European Central Bank, Mario Draghi, is due to speak later today and analysts will be looking for any clues on what to expect at the ECB's October policy meeting.

New Zealand's recent economic growth has surpassed all of the major countries except Canada, with special thanks to the high level of consumer confidence which has boosted the economy. It is widely anticipated that the general election result, where no party has succeeded in gaining a clear victory, may overshadow this week's economic data releases and central bank interest rate decision on Wednesday.

Top Chinese bankers called last week's S&P sovereign rating downgrade simply biased and unfair in their press conference earlier today. According to the chief economist of a top industry representative, China's debt is expected to increase but at slower pace in the foreseeable future, mostly due to decreases in GDP growth. Corporate profits in the nation are at a 5 year high and economic growth has been better than expected this year, while the top China banks' average non performing loan ratio has stabilized.

GBPUSD:

GBPUSD recorded lower tops and lower bottoms in the last trading day. The pair is trading between the high and low of September 22nd. 1.3595 is a key resistance level and 1.3448 is a key support level. The pair is expected to trade with a bearish outlook and downward momentum is further reinforced by the declining of both the 50 period moving average and the 20 day moving average. As long as the price remains below 1.3595, the pair is expected to hit 1.3448 (Sept 22 low) and after that 1.3400. Alternatively if the price moves above 1.3595 (Sept 22 high) expect an upward target at 1.3655 (last week's high).

EURUSD:

EURUSD is under pressure and in the earlier session declined almost 0.2% against major currencies. The downside movement is supported by the declining trend line; also the bearish cross between the 50 day moving average and the 20 day moving average has been identified. The relative strength index is also heading downward. To conclude, as long as price is below 1.20039 (yesterday's high), expect a downside movement towards 1.1820 and 1.1775. Alternatively, if the price moves above 1.20039, expect further upside movement towards 1.20697 (last month's high) and 1.20922 (this year's high).

NZDUSD:

NZDUSD is also expected to trade in a lower range. The pair retreated from 0.7343 (Sept 22 low) and is expected to continue its downside movement. The pair broke below the lower boundary of the Bollinger Band™ which confirms the bearish movement, with 20 day moving average also turning down. So, as long as pair is trading below 0.7343 (Sept 22 low), look for further declines to 0.7246 (last week's low) and 0.7200. Alternatively, if it moves above 0.7343, expect a rebound toward 0.7385 (minor resistance) and 0.7433 (last week's high).

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