Investors’ risk appetite has strongly increased leading to a sharp increase in volatility. The high volatility was exacerbated this morning after the Bank of Japan unexpectedly adopted negative interest rates, sending the yen sharply lower and the U.S. dollar higher in return. The market responded with a dramatic move due to the fact that only a few economists expected that the BoJ would expand its already-record stimulus. The greenback appreciated against its major peers as a result. The euro came under selling pressure but quickly recovered its losses.
Traders should focus on a break below 1.09 and further 1.0870. Once the 1.0870 is significantly breached we expect the euro to decline toward 1.0820. On the topside, the 1.0970-level will be in focus. If the euro breaks above 1.0975, we may see an upward extension until 1.10 and 1.1045.
The British pound traded in a 160-pip trading range Thursday, rising from its support level near 1.4240 towards next resistance levels at 1.44 and 1.4470. The upward movement was accompanied by volatile swings which resulted in a nice profit for sterling bulls at the end of the day.
Still room for further gains? We see sterling trading within a current upward channel ranging from 1.4440 to 1.4285. Based on that channel, GBP may extend its gains towards 1.4440 or even the next resistance at 1.4470. Bearish movements, however, could be limited until 1.4285 and 1.4240.
Given the rise in volatility traders should pay attention to important data releases as currency pairs may react strongly to any surprises.
Important data today:
10:00 EUR Eurozone Consumer Price Index
13:30 USA Gross Domestic Product
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