Fresh Lows Hit by Euro Against Pound and Dollar as Eurozone Inflation Falls Sharply

The euro exchange rate complex - under pressure for much of 2014 - has come under a fresh assault from currency traders as Eurozone inflation is seen falling at faster-than-expected rates.

It was shown inflation has fallen to a five year low, Eurozone core CPI printed at 0.7% versus 0.9% eyed - well below the ECB's target of 2% and this paves the way for fresh stimulatory measures at the ECB.

All eyes now fall to Thursday's meeting of the ECB in which no major measures are expected by the tone of ECB President Draghi in his meeting with the press will be closely watched for hints of further action.

Where is the Euro Rate Today?

• At the time of publication the euro dollar exchange rate (EUR/USD) is 0.20 pct lower, the conversion rate at 1.2607.
• The euro pound exchange rate (EUR/GBP) is meanwile 0.14 pct lower, the conversion rate is at 0.7780.

Are you holding out for a better exchange rate? Ensure your FX provider has the correct buy order ready, also ensure a stop-loss order is in place incase the market turns against you and costs you money (Find out more). Also note that an independent provider will seek to deliver up to 5% more currency than your bank does.

Inflation Figures are Key Concern to Euro's Outlook

"The latest inflation data suggests that price pressures in the region are non-existent as demand remains tepid and fears of disinflation begin to take hold. The figures are likely to put further pressure on ECB to begin an aggressive easing program in order to stimulate demand," says Boris Schlossberg at BK Asset Management.

Indeed, up to 1 trillion Euro could be pumped into the Eurozone economy in coming months.

"EURUSD’s decline reached a new benchmark overnight, edging to a new cycle low yesterday, dropping to a fresh two-year low just below 1.26 in response to the slower-than-expected (core) inflation growth in the Eurozone for September. From a broader, thematic perspective, we remain conviction USD bulls and fully believe the USD rally has further room to play out in the coming months," says Shaun Osborne at TD Securities.

The Dollar Powers Ahead, BUT The Euro Could Bounce Back

The dollar index moved above the 85 level for the first time since July 2010 as the dollar continues to gain against the major currencies.

"The RSI this week rose to 84.75, which is a very bullish level and shows just how strong the dollar has been in recent weeks," says Phil Seaton at LS Trader.

Beware though, a RSI reading above 70 suggests that a financial product is overbought and a correction could be due to shape up.

We would approach backing further USD climbs in the short-term with caution.

The dollar index’s rise was due to the continued collapse of the Euro, as well as the dollar rising to new highs against most of the majors.

Seaton points out that the euro is due a corrective bounce as euro sellers may now be hard to come by:

"The Euro dropped to its lowest level in 2 years on the basis of the back-adjusted continuous contract. On the basis of sentiment, not a reliable timing indicator by any stretch, there is barely a Euro bull left.

"What this effectively means is that pretty much everyone who wanted to sell Euros already has so there will be little in the way of further selling pressure from new sellers. Therefore a bounce can be expected but this will not put much of a dent in the very established downtrend, and following a corrective bounce, if it comes, much lower levels should be seen over the coming weeks."

Markets: Equities Under Pressure

Turning to broader market conditions we see sentiment remains subdued at the present time. Lee Mumford at Spreadex tells us:

"US stock futures are indicating another lower open with shares extending a drop after their worst week in eight. European and Asian markets also drifted lower this morning amid pro-democracy protests in Hong Kong took its toll on the markets.

"Protesters continued to demonstrate, in a view to persuade the city’s top official to step down. Banking stocks led the declines, sending the FTSE over 30 points lower to 6620. Standard chartered and HSBC holdings took the brunt of the falls, both trading over 2 percent lower.

"Data released today showed that British mortgage approvals slipped to a three-month low in august, falling slightly more than expected.

"With signs that the housing market has cooled in recent month, sterling drifted lower on the news. The dollar strengthened against other major currencies ahead of data from the US which is scheduled to show Pending Home Sales decreased by -0.4%."