Prior to yesterday’s European Central Bank (ECB) meeting in Frankfurt, the EUR/USD had been confined to a narrow range between 1.1320 and 1.1290. Now the pair is pinned to the 1.1200 level where it has traded for most of the Asian session.
There were three key aspects of the ECB’s policy statement which shaped the negative sentiment toward the Euro and sent the single currency down to a 20-month low of 1.1175 during the NY time-frame.
First, the Governing Council’s staff forecasts were revised lower than market expectations. And while the GDP and Inflation downgrades out until 2021 didn’t inspire Forex traders to place bullish trades, these staff forecasts were not the worst part of the ECB’s statement.
Second, as recently as December, the ECB’s forward guidance on interest rate normalisation included an upward adjustment to the benchmark overnight rate of -40 basis points sometime in Q2 2019. This policy measure quickly went out the window as ECB chief, Mario Draghi, stated emphatically that there is no urgency to adjust rates this year or next. This news pushed the EUR/USD to 1.1260.
Third, the expected Targeted Longer-term Refinancing Operations (TLTROs) were confirmed, but with a confusing twist. Instead of opening the targeted loan scheme immediately, eligible EU banks will not be able to access the loans until September. Further, the duration of the refinancing has been shortened from four years to two years for TLTRO 3.
As Mr Draghi fielded questions about the logic of the delay and the shorter loan tenor, investors sold shares in the effected European banks which then pushed the EUR/USD back below 1.1200.
With the US reporting its monthly Non-Farm Payroll (NFP) data later today, some chartists are suggesting that a stronger US jobs report could push the EUR/USD down into the 110.00 handle. The preliminary forecast for the NFP is 170,000 new jobs, a slight drop in the UE rate to 3.9% and a .3% increase in hourly earnings.
We can certainly understand the negative logic, however, from a technical perspective, we respect the recent signals in the daily Relative Strength Index (RSI) and see scope for some price consolidation before USD bulls take a run at key support just above 110.00. Since May of 2018, there have been five occasions when a RSI reading of 30.00 have signalled a short-term low in the EUR/USD.
That said, we are currently short EUR/USD from 1.1445. We suggest holding short with an initial target of 1.1140 and lowering the stop to 1.1285.
The lack of any material progress in the latest round of Brexit negotiations this week has weighed on the Sterling. Since posting a high of 1.3280 earlier this week, the GBP/USD has dropped over 200 points and looks set to test initial support near 1.3040. We are currently short from 1.3225 with an initial target of 1.3060 and a 1.3155 stop.
The Aussie dollar has broken near-term support at .7020 and looks poised to break down through the .7000 handle. With a daily RSI reading of 36.30, we see scope for another push lower before a meaningful period of consolidation. Our trade suggestion to sell at .7125 was not filled, which leaves us short from .7145.
We suggest holding short from .7145 with an initial target of .6965 and a .7125 stop.
Since reaching a three-month high of 112.15 on Tuesday, the USD/JPY has slid over 100 points lower and has tested 1110.00 during the Asian time-frame. The SP 500 closed below the 20-day moving average yesterday for the first time since January 2nd.
If Wall Street extends this week’s losses into today’s session, we see scope for another leg lower in the USD/JPY with key support at 110.20. Our trade suggestion to sell at 111.70 was filled. We suggest holding short with an initial target of 110.40 and a 111.35 stop.
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