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Major Risk Events Loom Before Easter Holiday

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This holiday-shortened week is loaded with economic event risk. Before the Easter holiday and the French presidential election on Sunday, market participants are eyeing inflation risk with the U.S. CPI scheduled for release on Tuesday. On Thursday, the European Central Bank will deliver its interest rate decision while no monetary policy changes are expected. Nonetheless, traders should expect some hawkish commentary for the euro.

While other major central banks are already tightening monetary policy, the ECB seems to be behind the curve. Market participants brought forward their calls for interest rate hikes, now seeing moves in September and December. The format of Thursday’s ECB press conference is yet to be decided after ECB President Christine Lagarde tested positive for Covid-19.

EUR/USD – Opening gap

The euro opened higher versus the U.S. dollar this week amid some relief over the French election. However, the upside gap was closed in the early morning hours of trading.

Technically, the pair finds itself in oversold territory which is making corrections towards 1.11 more likely ahead of Thursday’s policy decision. However, there is also potential for disappointment, so potential gains might be limited. A crucial support is seen around 1.08.

GBP/USD – Will the 1.30-support hold?

The cable slid below 1.30 but found some halt at around 1.2980. If sterling bulls are unable to push the pair back above 1.31, we expect further losses and a test of 1.29 in the near-term.

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

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The ECB’s Hawkish Surprise

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The European Central Bank unexpectedly accelerated its wind-down of monetary stimulus which came as a surprise for market participants as it signals that the ECB is more concerned about inflation than the implications of the war. Adjustments in interest rates would take place “some time” after the end of asset purchases. In other words, yesterday’s decision can be described as hawkish while a first rate hike before the end of the year is still in the cards.

The EUR/USD surged to a high of 1.1121 on the ECB’s hawkish surprise but sellers quickly took the opportunity to sell the single currency on a higher note. We will now wait for a decline below 1.0970 in order to sell euros towards 1.09 or on the other side, a bullish break above 1.1170 to shift the focus to a test of 1.1220-30.

EUR/USD Trading ideas for 11/3/22:

Long @ 1.1035, Short @ 1.0980

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

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ECB Decision to Prove as Non-Event?

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The anti-risk U.S. dollar started this day with another round of weakness on optimism that U.S. fiscal spending will revive economic growth. Yesterday however, we saw the dollar slightly appreciating against the euro but bearish momentum was not strong enough to send the EUR/USD below 1.2070.

The GBP/USD surged to a high of 1.3718 but failed to hold onto its high level and the pair is currently trading again below 1.37. We now focus on a trading range between 1.3780 and 1.3580.

The DAX treated water recently and we saw the index fluctuating within a relatively narrow price range between 14000 and 13700. This could however change in the near-term and we brace for larger market moves and pencil in a trading range between 14400 and 13800.

Today the focus will be on the European Central Bank policy decision and while no changes are expected, traders will have a close eye on ECB President Christine Lagarde. If she sounds more optimistic than the market expects we could see the euro rallying but most of Lagarde’s recent upbeat tone is already priced in into the euro’s strength, which is why today’s decision could prove to be a non-event.

The ECB appears to be on track to retain its current policy amid worries about new coronavirus strains, political tensions in Italy and the euro’s strength that dampens the rebound in inflation.

While chances are still in favor of the bulls, we expect potential gains to be limited until 1.2250 but it all depends on the market’s risk appetite.

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ECB Decision: Will The Euro Extend Its Gains?

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The dinner meeting between U.K. Prime Minister Boris Johnson and European Commission President Ursula von der Leyen ended without a breakthrough. The talks will continue until Sunday as both sides still want a deal.

The pound gave up previous gains and dropped back below 1.34. Sterling’s price action followed a short-term downtrend channel (see our analysis from Wednesday), suggesting that upward movements could be limited to 1.3450 given that there is no Brexit breakthrough within the next two days.

Today all eyes will turn to the European Central Bank policy decision and the euro’s reaction to it. The ECB will publish its decision at 1:45 p.m. Frankfurt time and President Christine Lagarde will hold a virtual press conference 45 minutes later.

Policy makers are expected to add 500 billion euros to their emergency bond-buying program and extend it until at least the end of 2021. The deposit rate is expected to remain at -0.5%.

One risk is the current exchange rate of the euro which is making exports from the currency bloc less competitive and putting downward pressure on inflation by making imports cheaper. The ECB frequently stresses that it does not target the exchange rate but its commentary may try to restrain the euro.

The bottom line is that even if more easing is on the way which would normally weaken the currency, chances are in favor of a continuation of the euro’s rally.

Recently, traders in the EUR/USD have taken a more cautious approach which can be seen in the euro’s consolidation phase following its peak at 1.2177 (see short-term downtrend channel in our analysis from Wednesday). However, the pause in the euro rally doesn’t necessarily mean that the bullish outlook has been negated.

Technically, the short-term downtrend channel (or bull flag if rally continues) now ranges from 1.2130 to 1.2040 and we will focus on breakouts above or below these levels.

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ECB Meeting Unlikely To Move Euro Exchange Rate

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Dear Traders,

It’s decision day at the European Central Bank today but whether this event risk carries much weight will depend on ECB President Mario Draghi’s comments at the ECB press conference. Traders are looking for hints on when interest rates will begin to rise but ECB policy makers suggested earlier that a rate hike won’t come at least until the end of summer 2019. If there is no change in guidance, the euro could give up some of its recent gains.

General speaking, it seems unlikely that Draghi intents to move the single currency at today’s meeting, so watch out for range-bound price action.

As for the dollar, the most interesting piece of data will be released tomorrow with the U.S. 2Q GDP.

EUR/USD: The next hurdle is now seen at 1.1750 before we turn our focus to the crucial resistance area between 1.18-1.1850. Looking however at larger time frames, the currency pair remains trading sideways between 1.1850 and 1.15.

 

Summer trading break: We are slowly preparing for our summer holiday break which means that we are reducing risk exposure while adopting a cautious approach.

Announcement: Shortly after the summer break our Chief Currency Strategist will commence her maternity leave, which is why daily analysis and signals will be paused until the end of her period of maternity leave.

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Will The Euro Rise Or Fall? Waiting For Draghi

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Dear Traders,

It’s decision day at the European Central Bank and traders are eagerly awaiting ECB President Draghi’s comments. Today’s ECB meeting is a very important event as it is expected to provide clarity on the withdrawal of stimulus. The majority of analysts expect Mario Draghi to delay announcing a timetable for cutting its monthly bond purchases at this meeting. The reason is the strength of the euro which may prevent the central bank from announcing a big change in monetary policy. Moreover, improving economic conditions in the Eurozone are likely to balance out near-term concerns over the euro’s strength. Ongoing EU improvements thus give room for the ECB to forego an announcement of a QE taper. If the ECB downplays tapering, the euro could fall. In the bullish case of a surprise announcement particularly a reduction of 30 billion or more, the euro will further rise. Whatever the case, the central bank has little choice but to cut asset purchases by next year, simply because it has no more bonds to purchase. In a first step, the ECB could reduce its monthly purchases to 40 billion from 60 billion which could happen at the start of 2018.

It all depends on Draghi’s rhetoric but even in the case of a dovish announcement, the medium-term trend is towards euro strength.

The U.S. dollar, in contrast, has become incredibly oversold. So any disappointments on the Eurozone front would be sufficient to trigger a correction in the EUR/USD, even though a setback may not last very long. Let’s be surprised.

The European Central Bank decision is scheduled for 11:45 UTC, followed by the highly anticipated ECB press conference 45 minutes later.

The euro traded virtually unchanged against the U.S. dollar while the price action of the EUR/USD was limited to a tight range between 1.1950 and 1.1910. We are still waiting for breakouts of that narrow range and prepare for larger swings today. Above 1.1960 the euro could head for 1.2120. Below 1.1890 it could fall back towards 1.18 and possibly even 1.17.

We wish you good trades!

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EUR/USD And GBP/USD: Will The Bullish Bias Continue? Focus On Draghi And U.K. Inflation

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ECB Decision: Stimulus Change Would Be Premature

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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!

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