ECB Decision Day: Hawkish Or Dovish Taper Mr Draghi?

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Dear Traders,

It’s decision day at the European Central Bank and traders in all EUR crosses brace for heightened volatility at this highly anticipated event that will bring forth news on the pace of the ECB’s quantitative easing program (QE). The euro traded higher against the U.S. dollar ahead of today’s announcement since the ECB is expected to announce a reduction in the size of its monthly bond buying. While this expectation alone is considered euro-positive, the devil is in the details. There are a number of possible scenarios while the best (but most unlikely) scenario for the euro would be a reduction of EUR40 billion bonds buys until September 2018. The most likely scenario is however a taper of 30 billion euros with a nine-month extension of the QE program. Since the latter scenario is already largely priced in the euro’s price development, the risk is tilted to the downside if the ECB fails to surprise the market. Bearing in mind that ECB policy makers want to avoid a too strong euro they need to be careful in their statement. If the market senses a more cautious approach towards monetary policy normalization or in the case of a reduction of only EUR20 billion bond buys per month, the euro could fall.

Whatever the case, the good news is that ECB President Mario Draghi can be expected to emphasize that the Eurozone economy is in a good shape and probably capable to withstand tighter monetary policy over the medium-term.

The ECB’s decision will be announced at 11:45 UTC and Draghi will speak 45 minutes later.

EUR/USD

The euro currently trades around the resistance line of its recent downtrend channel near 1.1840. If the euro breaks above this barrier, the focus will shift to the 1.19-level. A sustained break above 1.1915 is needed to encourage euro bulls for a run for 1.20 or 1.21. If 1.19 however holds, particular focus remains on the 1.17-support. A renewed break below 1.1680 and 1.1650 could send the euro towards 1.1580.

The British pound rose on upbeat U.K. GDP data that bolstered the case for a Bank of England rate hike next week.

From a technical point of view, the primary uptrend channel finally proved correct and suggests that we may see further gains towards 1.33 and 1.3350. A break above 1.3365 would brighten the bullish outlook. A current support is however seen at 1.3150.

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Euro Consolidates Pre-ECB While Pound Declines On Brexit Uncertainty

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Dear Traders,

The EUR/USD is still consolidating within a narrow trading range as it waits for the ECB announcement to encourage volatility. Tomorrow’s ECB announcement is expected to bring a cut of the central bank’s monthly purchases to EUR30B but there is speculation that ECB policy makers may favour a dovish taper in the effort of keeping the euro relatively weak. Traders should prepare for more volatile swings now ahead of tomorrow’s highly anticipated event. However, with no new drivers we still expect the EUR/USD to fluctuate between 1.1850 and 1.17.

Sellers in the GBP/USD were able to gain a good profit yesterday with the pound heading for 1.31. The pound declined amid uncertainty around Brexit negotiations between the UK and EU and while the tortuous Brexit talks are continuing to sour the sentiment in the pound, there is a ray of hope – at least in short-term time frames: UK GDP figures (due for release today at 8:30 UTC) are expected to show an economic growth of 1.5 percent year/year that is likely to persuade the Bank of England to hike interest rates at the BoE’s ‘Super Thursday’ next week on November 2.

From a technical perspective, we still see the GBP/USD fluctuating within its crucial price range of 1.32/1.3230 – 1.31. While sustained price breakouts did not happen we still focus on both scenarios; either a bullish breakout above 1.3235 or a bearish breakout below 1.3085.

From the U.S. we have Durable Goods Orders scheduled for release at 12:30 UTC.

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Limited Price Swings Amid Lull In Volatility But Breakouts May Be Looming

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Dear Traders,

There was nothing to gain for traders of the EUR/USD and GBP/USD on Monday. Both major currency pairs were little changed with larger price fluctuations being absent. The euro fell to a low of 1.1725 before reversing its losses towards 1.18. In sum, trading the EUR/USD lately did not serve us well since larger price movements and breakouts are still lacking. However, this unprofitable trading phase could soon be over as the ECB meeting looms ahead. The ECB policy announcement is expected to bring clarity on the fate of the ECB’s asset purchase program but until then the euro may continue its sideways movement between 1.1850 and 1.17.

EUR/USD: If the pair breaks above 1.1790 it faces the next hurdle at 1.18 but given prepositioning ahead of the ECB meeting, it may trend higher, heading for a test of 1.1850/60. A current support is however seen at 1.1720.

The German Manufacturing PMI is scheduled for release at 7:30 UTC but this report is unlikely to have a major impact on the price action in the euro.

GBP/USD: Recent price action in the cable indicates that a bullish breakout may be imminent. We see prices formatting an inverted head-shoulders pattern after failing to break the 1.31-support significantly. We now prepare for upcoming bullish momentum driving the cable towards 1.33 and possibly 1.3370.

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EUR/USD And GBP/USD Bounce Off Resistance Levels; USD Stronger

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Dear Traders,

Positive developments in Washington and hopes that the U.S. tax reform bill could pass the House have been supportive for the U.S. dollar. The greenback advanced against the euro and British pound, driving both EUR/USD and GBP/USD towards important support levels. The U.S. Senate adopted a fiscal 2018 budget resolution on Thursday that House GOP leaders agreed to accept.

On the flipside, the euro received no support from political developments in Spain. Madrid is finalizing plans to take control of Catalonia and to suspend the region’s autonomy. This step should keep the political situation in Spain tense.

The pound fell on disappointing U.K. data and speculation that the upcoming Bank of England rate hike could be a one-off. The BoE is forecast to hike rates on their next monetary policy meeting on November 2 but analysts doubt that there could be more than one rate increase in the medium-term. For the time being, we expect the pound to trade with volatile swings between 1.3250 and 1.30. As mentioned in yesterday’s analysis, for bearish momentum to accelerate the pound will have to break the 1.31-support significantly.

EUR/USD: As expected, the resistance level at 1.1850/60 has proved correct and the euro tested this barrier before reversing some of its gains. We now expect the pair to trade lower and focus on targets at 1.1770 and 1.17.

There are no major economic reports scheduled for release today. Fed Chair Janet Yellen is scheduled to hold a speech today but since this speech is only due after markets close, it will not affect the price action.

We wish you good trades and a nice weekend.

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EUR/USD And GBP/USD (Still) Favor Downtrend

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Dear Traders,

The pound fell after yesterday’s Bank of England testimony from Governor Mark Carney was less hawkish than hoped. While Carney sticks with his view that policy adjustments would likely be made in the coming months he said the central bank is making contingency plans for a “hard” Brexit. Despite the U.K. inflation print of 3 percent that is likely to force the BoE to hike rates in the near-term the pound is very sensitive to Brexit headlines. In the absence of progress, the pound remains vulnerable to losses but if negotiations between the UK and EU are proceeding constructively, the pound could gain some ground.

The U.K. Labor Market Report is scheduled for release at 8:30 UTC and could have an impact on the pound’s price action.

The euro depreciated against the U.S. dollar but found some halt at 1.1735.

European Central Bank President Mario Draghi is scheduled to speak at 8:10 UTC at the “Structural Reforms in the Euro Area” conference in Frankfurt. If he touches on monetary policy the euro could respond with volatile swings.

As for the greenback, there are no major driving forces at the moment. The priced-in probability of a Federal Reserve December rate hike increased to 80.2 percent while the focus will be on President Donald Trump’s choice for the next Fed chair, which will be unveiled before November 3. If Yellen stays in her post, it could be dollar-positive. If, however, Powell takes over the office from Yellen the dollar could fall since he favors gradual rate hikes.

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Pound Falls On Fears Of Collapse Of Brexit, Focus Now On Inflation

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Dear Traders,

Trading was relatively quiet on Monday with the EUR/USD trading within a narrow 40-pip range. The picture was different in the GBP/USD, which started the week with volatile swings ranging from a daily high of 1.3312 to a low of 1.3225. As mentioned in our analysis from Monday, the pound sterling is currently torn between rising inflation and thus, higher interest rates on the one side and Brexit uncertainty on the other side. Yesterday, the pound came under selling pressure on speculation that Brexit talks could break down, unless the European Union gives ground at a summit of EU leaders later this week. A person familiar with the matter said the entire Brexit process will be in danger of collapse as long as negotiations are failing to make progress. The pound fell to a low of 1.3225 on the concerns about the lack of progress.

The focus will now shift to the U.K. Consumer Price Report, due at 8:30 UTC followed by BoE Governor Carney’s appearance before congress at 10:15 UTC. We expect the GBP/USD to remain vulnerable to volatile swings while we currently see the chances in favor of further bearish movement towards 1.30. If the cable breaks above 1.33 again, it may head for a test of 1.34 but the upward movement could be limited as Brexit concerns continue to weigh on the currency.

From the Eurozone we have the Consumer Price Report and ZEW Survey scheduled for release at 9:00 UTC. These reports may have a short-lived impact on the euro.

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British Pound Experiences Roller Coaster Ride On Soft Brexit Speculation

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Dear Traders,

The biggest story in the market on Thursday was the British pound which experienced a roller coaster ride. The GBP/USD initially dropped to a low of 1.3121 from where a sharp reversal started, quickly pushing the pound towards 1.33. The reason for the sharp price rise was a report, saying that Europe’s top negotiator may offer the U.K. a two-year Brexit transition period to stay in the single market. Any signs in favor of a soft Brexit are generally positive for the pound, while a hard Brexit is seen as the worst scenario for the U.K. economy. Until only recently the official line had been that there was no major progress in the Brexit discussions.

While Brexit remains the main driver of the pound, traders should keep an eye on the technical picture. GBP/USD is still below 1.33 and once that hurdle is significantly taken out, we could see the pound further rising towards 1.3350 and 1.3450. Sterling bears should however wait for prices below 1.3150.

 

The euro traded range-bound between 1.1870 and 1.1825. ECB President Draghi’s speech failed to have an impact on the euro’s price action. We now expect the EUR/USD to trade between 1.1930 and 1.1830. Sellers should keep an eye on prices below 1.1780 that could lead to further losses towards 1.1730.

Most attention will be paid to the U.S. Consumer Price Report scheduled for release at 12:30 UTC today. Around the release time of this report we expect higher volatility in all USD crosses.

We wish you good trades and a wonderful weekend.

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EUR/USD: 1.19 Could Be A Make-It Or Break-It Level

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Dear Traders,

Yesterday was dominated by a weakening U.S. dollar, which extended its slide against the euro and British pound after the market interpreted the FOMC minutes as slightly dovish. While Fed policy makers see another rate hike this year, many issued concern that low inflation was not a temporary phenomenon. The priced-in probability of a December rate hike is still unchanged around 75 percent but if Fed officials believe that inflation could stay low for longer, then they might be less inclined to stay committed to a steep rate hike path in the future. The minutes were neither more dovish nor more hawkish but market participants interpreted the increasing concern about inflation as dollar-negative.

The focus now shifts to tomorrow’s U.S. Consumer price report, which, if positive, could boost the dollar.

EUR/USD

The euro rose steadily up to a high of 1.1878 and the linear movement seems quite an atypical performance of the market. The 1.19-level could now serve as a ‘make-it’ or ‘break-it’ barrier. If the euro is able to break significantly above 1.1910, we expect further gains towards 1.20 and possibly even the September high of 1.2092. If the price, however, remains below the 1.19-barrier, the euro could start giving up some gains and may fall back towards 1.1780. Moreover, we bear I mind that the RSI index approaches overbought territory, a situation that could limit near-term gains in the euro.

ECB President Mario Draghi will hold a speech today at 14:30 UTC in Washington and if he touches on monetary policy the euro could respond to his comments with volatile swings.

The GBP/USD traded range-bound between our entry levels at 1.3235 on the upper and 1.3175 on the lower side. During the Asian trading session, the pound sterling was finally able to break above 1.3235 and rose to a high of 1.3265. As mentioned in previous analysis, we expect a next resistance near 1.33 and this level could be crucial for the future price development in the cable.

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Can FOMC Minutes Fuel Demand For Dollars?

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Dear Traders,

The U.S. dollar’s relief rally has lost some momentum with both EUR/USD and GBP/USD heading upwards. From a technical perspective it is noteworthy that the important resistance levels in both major currency pairs are still unbroken, at least for now. The greenback may receive attraction ahead of the FOMC meeting minutes which are scheduled for release today at 18:00 UTC. Bearing in mind that the Federal Reserve plans to raise interest rates one more time this year followed by another three hikes next year, the minutes should confirm the hawkish outlook. While this alone is dollar positive we have to consider that a December rate hike has been largely priced in by the markets. Thus, the minutes could possibly be a non-event for traders today but let us be surprised.

On the flipside, the euro received some support from Catalonia’s president Carles Puigdemont who stepped back from an immediate declaration of independence from Spain. He said he would “suspend” the referendum result for a period of some weeks for dialogue with Prime Minister Mariano Rajoy’s administration. The euro rose towards its resistance area at 1.1830-40 but as long as that barrier remains unbroken, we expect the euro to drop back towards 1.1775 and possible even 1.17.

The British pound touched the lower bound of its current resistance zone ranging from 1.3250 to 1.3220. In short-term time frames we see the cable formatting a potential double top pattern which could predict upcoming bearish momentum, provided that the cable remains below 1.3230. A break below 1.3175 could reignite bearish momentum driving the pair towards 1.3130.

Apart from the FOMC minutes there are no major drivers in the market today. Let us wait to be surprised.

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Greenback Strengthens Pre-NFP

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Dear Traders,

Finally, the U.S. dollar returned to its former strength pre-NFP with also EUR/USD joining the downward trend. The euro gave way to the strengthening dollar and thus, EUR/USD dropped below 1.17 after gains were capped at 1.1780.

The main topic in the market was however the fall of the British pound which came under severe downward pressure after chaotic U.K. politics put the country’s outlook on very shaky foundations. The pound came under selling pressure after UK Prime Minister Theresa May put in a disastrous performance at the annual conference of her Conservative Party. Her speech was disrupted by prankster and then by a coughing fit. That disastrous speech weakened her position as PM while the idea of replacing May in the middle of Brexit negotiations is widely viewed with horror. A replacement by Brexit hardliner Boris Johnson could make a deal with the EU harder rather than easier to reach.

The GBP/USD fell below important support-levels at 1.3150 and 1.31 and could now be headed towards a test of 1.30.

Today, all eyes will be on the Non-farm payrolls report scheduled for release at 12:30 UTC.

The U.S. September Employment report is expected to show a weaker reading due to the impact of hurricanes on southern states. Meanwhile, comments from Fed officials reinforced optimism ahead of the jobs report, saying Fed policymakers “pencil in” a rate hike in December and three hikes next year. The priced-in probability of a December rate hike is currently at 75 percent.

If payrolls beat expectations, the greenback will receive a boost and could further rise against the euro and pound.

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