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The Euro’s Fate Is In Draghi’s Hands

Dear Traders,

What a trading day! The U.S. dollar extended its slide against other major currencies on the back of protectionism while the pound’s rally intensified the uptrend in GBP/USD.

Moreover, comments from U.S. Treasury Secretary Steve Mnuchin steepened the dollar’s dive. He said that” obviously a weaker dollar is good for us as it relates to trade and opportunities”, a departure from America’s traditional strong dollar policy.

Our yesterday’s long entry in the GBP/USD has proved highly profitable even though we have been on the lookout for corrections. Despite the cable’s strong uptrend which could persist over the medium-term, we may see some pullback tomorrow when both U.K. and U.S. GDP reports are due for release.

GBP/USD

The pair jumped to the highest level since June 23, 2016 – the day of the Brexit referendum. The reasons for the strong rally lie not only in the weakening dollar but also in good U.K. data and the progress in Brexit talks. On a weekly basis we got a bullish breakout suggesting that there could be accelerated bullish momentum on the way towards 1.46 – the next crucial resistance zone. As long as the pound remains above 1.40, the overall outlook remains constructive.

While the biggest story was the pound’s strong rise, the performance of the euro was not bad either. The euro broke above 1.2350 and headed towards 1.2450 ahead of the ECB meeting. Whether the euro can hold onto its high levels or can even extend its rally, will hinge on the rhetoric of Mr. Draghi at the ECB press conference at 13:30 UTC.

If ECB President Mario Draghi joins the chorus of policymakers speaking against the euro’s strength, the euro could quickly give up some of its gains. However, the devil is in the details and if Draghi fails to convince the market of the ECB’s concerns about the currency’s strength, the euro could further rise.

EUR/USD

We prepare for higher volatility today and expect larger market swings. On the topside, we will now focus on the 1.2460-barrier, which could act as a short-term resistance. For bearish momentum to accelerate, it would need a break below 1.23 and further 1.22. As long as the euro remains above 1.23 chances are in favor of the bulls.

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All Eyes On Draghi: Will He Talk Down The Euro?

Dear Traders,

The British pound finally broke above 1.2865 this morning and a next hurdle could now be at 1.29. If the pound rises above 1.2910 we may see a run for 1.30. Let’s us wait and see.

The much anticipated U.S. tax plan disappointed investors as it left too many unanswered questions and did not reveal anything new. The U.S. dollar weakened against the euro and pound as a result. The “phenomenal” tax plan came in as a one-page list of bullet points and was largely devoid of detail.

Euro traders will shift their focus to the European Central Bank meeting while no changes are expected from the central bank. ECB President Mario Draghi will most likely maintain a dovish monetary policy stance since a strong euro is the biggest problem for policy makers and makes it more difficult for the ECB to achieve its inflation target. In a nutshell, we doubt that Draghi is debating an exit from its extraordinary stimulus. With no fresh insights, the ECB meeting could thus be a non-event for traders but let us be surprised.

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Any and all liability of the author is excluded.

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ECB Decision: Stimulus Change Would Be Premature

Dear Traders,

It’s ECB decision day and the euro trends slightly lower against the U.S. dollar ahead of the event risk. Meanwhile, the dollar received some support by an unexpectedly robust ADP employment report which nearly doubled the 185K forecast, lifting estimates for tomorrow’s non-farm payrolls report. A Fed rate increase is therefore priced in as a near-certainty. However as certain as next week’s FOMC rate decision seems, the tightening cycle in subsequent meetings has not accelerated. Hence, the greenback seems to be unimpressed by the hawkish outlook.

Euro traders will pay close attention to comments from European Central Bank president Mario Draghi. The bar is high and investors are looking for clues as to whether the conditions are right for a stimulus change. However the central bank is not expected to signal any change in policy today as policy makers will keep QE probably going until the end of the year. Even with euro-zone inflation at 2 percent for the first time in four years, Draghi is expected to maintain a dovish bias for the time being. The ECB must very cautiously reduce the level of current stimulus and it will therefore seek to avoid unnecessary turmoil. Nevertheless, inflation forecasts are expected to be revised higher for 2017 and 2018, which is why some market indicators point to the possibility of a rate hike in 2018.

The ECB’s decision will be announced at 12:45 UTC, followed by the ECB press conference 45 minutes later.

As usual, traders should prepare for volatile swings around the time of the press conference. Technically, the euro’s downtrend remains intact with the focus being on a next lower target at 1.0515/10. The 1.05-support level could lend a strong support to the euro which is why traders should also consider possible pullbacks in short-term time frames. A current resistance is seen at 1.0550, a level where sellers might jump back in. If the euro breaks however above 1.0575 we may see further gains towards 1.0640 and possibly even 1.0670. A break below 1.0490 could increase bearish momentum towards 1.0390.

The pound sterling extended its losses against the greenback and dropped to a low of 1.2139. We still anticipate some corrections in short-term time frames, sending the pound higher towards 1.23 and possibly even 1.24. On the bottom side there is a crucial support area ranging from 1.21 to 1.20. The pound may have difficulty to break that support zone ahead of the trigger of Article 50. No date has yet been fixed for the potential Brexit trigger, which is supposed to take place before the end of March.

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We wish you good trades and many pips!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2017 Maimar-FX.

www.maimar.co