It was no surprise that the European Central Bank left interest rates unchanged last night. Forex Investors were focused on ECB President Draghi’s monetary policy bias and by taking a look at the price action, it should be clear that he was not hawkish enough. However, there was quite a bit of volatility in the euro after the monetary policy announcement and not all of it had to do with the rate decision.
One thing we haven’t heard often in the past year was “the polls were right” but that was exactly what unfolded on Sunday in France as Macron and Le Pen won the first round of the election.
The euro opened nearly 200 pips higher at the open with yen tumbling. CFTC positioning data showed few GBP shorts getting cleared out despite last week’s jump. EURUSD long remains over 100 points higher on the day.
An intense election year for Europe just got more exciting. With France’s upcoming presidential election too close to call, and Germany preparing for a crucial vote in September, British Prime Minister Theresa May has now called a snap election for June 8 in the UK.
The outcome will have far-reaching implications not only for the UK’s ongoing negotiations on withdrawal from the European Union, but also for the survival of the UK itself.
When liquidity is light during the holidays, trading is never easy. However, during times of geopolitical uncertainty, less trade flow doesn’t mean narrow trading ranges; especially when the market is so sensitive to fundamental news events.
Considering the deplorable track record that domestic polling agencies had during the UK “Brexit” vote and the US Presidential election, it’s understandable that FX Investors aren’t relying on the French pollsters to be any more accurate than their US or UK counterparts.
With the forex trade flows thinning into the Easter holiday, it was another day of headline driven volatility with the USD sold off sharply after comments from President Trump. In a mid-day interview with CNBC, Mr Trump suggested that the USD is getting too strong because of international investors growing “confidence” in his policies.
The forex market sold the USD immediately and sustained the levels after his comments on China. Essentially back flipping on one of his most adamant campaign promises, Mr Trump confirmed that the US Treasury would not be labelling China as a currency manipulator in their upcoming trade report.
Good Friday is at the end of this week. As such, after Wednesday, full forex market liquidity will not return until April 18th, following Easter Monday. With no first-tier data scheduled for this week, technical levels should be watched in the major currency pairs.
In general, the USD has started the week with a firmer tone. The Greenback posted gains last week against all of the major currency pairs except the USD/JPY. The next level of resistance for the USD Index is 101.40. A move through there would suggest a move back to the March 9th high of 102.25.
It was a pretty quiet, pre-Non Farm Payroll session in Asia … until the report that the US Navy launched 60 Tomahawk missiles into a military airfield in Syria.
The immediate result was a “risk off” move which saw the USD gain across the board, except for the JPY. As the day progressed, the forex market settled into narrower ranges and will await the Jobs data at the NY open.
It’s a new week, new month and new quarter. With no first-tier data out until the US Non-farm Payrolls on Friday, we could see technical drivers dictating currency flows early in the week.
The USD Index snapped a 3-week losing streak by climbing over 1% last week. It was the biggest gain in 7-weeks and finished above the key resistance level of 100.00. Technical indicators are pointing higher and the next target to the topside is 101.60.
After trading over 1.0900 on Monday, the EUR/USD has been pounded back down to the 50-day moving average near 1.0660. The three-day losing streak has broken through several key technical levels after comments from Central Bank officials from both sides of the Atlantic re-ignited the divergence trade in the pair.
The slide started earlier in the week after reports hit the newswires that several ECB policy makers are reluctant to make any changes to the bank’s policy statement at the April meeting and that the market has misread their message from March’s meeting that they would begin to price in a rate hike by later this year.
Politics will be a key driver in the Forex market this week; especially for the Sterling.
This is going to be a big week in the UK with Article 50 being triggered in a few days, which will allow the real negotiations to begin on the conditions of Great Britain leaving the EU.
As expected, Brussels has been making a lot of noise about how strict the terms of trade will be with some EU MPs even suggesting cash demands of up to €60 billion for an exit fee.