Forex traders are focusing on three G-7 Central Bank meetings this week. The Reserve Bank of Australia (RBA) will announce their rate decision on Tuesday, while the Bank of Canada (BoC) and the European Central Bank (ECB) will give their monetary updates on Wednesday.
Of the three meetings, only the ECB has any clear expectation of market moving announcements. And even though a change in the benchmark overnight rate of -40 basis points is unlikely, there are two dimensions of the of the meeting which could drive Forex flows during the London session.
1) As per each quarterly meeting, the ECB’s staff will update their risk assessments and forward looking economic forecasts. Since the last update in December, the EU inflation aggregate has slid from 1.2% to 1.0%, while EU PMIs have printed down to multi-year lows. The only bright spot has been a slowing of the drop in overall employment numbers. In short, the staff updates could make for disappointing reading for Euro Bulls.
2) ECB chief Mario Draghi will likely commit to re-starting the Targeted Long-Term Refinancing Operations (TLTROs).
To be clear, these targeted loans are not QE or financial stimulus, but rather, cash injections into European banks to temporarily avoid solvency strains. This will be the third round of targeted loans following the €420 billion in 2104 and the €365 billion in 2016.
Since the durations of the loans are four years, the new round of TLTROs will allow EU banks to refinance their old loans before they shift from long-term obligations to the more strict liquidity ratios of short-term obligations of 1-year, or less. We are curious to hear what type of positive spin Mr Draghi puts on announcing the third EU banking bailout in the last five years?
The ECB met eight times in 2018, the EUR/USD traded lower after seven of those meetings. Anything can happen in the Forex market, but it’s hard to imagine how lower staff economic forecasts and the injection of another 300 or 400 billion Euros into the EU banking system will be bullish for the EUR/USD.
We are currently short EUR/USD from 1.1445. We suggest holding short from 1.1445 with an initial target of 1.1125 and a 1.1465 stop.
After last week’s 1% gain, the GBP/USD is up over 3% for the year. With the next Brexit vote due next week, we could see some technical strain on the top side of the pair. The daily RSI hit 71.00 on Wednesday last week and has since followed the price action lower to 61.00. We see scope for a further pull back into the 1.3100 handle.
Our trade suggestion to sell GBP/USD at 1.3225 was filled. We suggest holding short from 1.3225, or better, with an initial target of 1.3040 and a 1.3375 stop.
Even though we don’t expect a strong market impulse in the Aussie from Tuesday’s RBA announcement, the same can’t be said about Wednesday’s quarterly GDP report. Looking at the weakening component figures over the last few months, it’s possible that the GDP release could show the first negative print since December 2016.
The negative momentum has slowed as a congestion of support levels range from the .7040 to .7060 area. We are currently short from .7145 and suggest adding to short positions at .7125 with an initial target of .6965 and a .7210 stop.
The USD/JPY traded over 112.00 for the first time this year on Friday and has consolidated above 111.80 during today’s Asian session. We are currently flat the pair and suggest short-term traders sell at 111.70 ON STOP, with an initial target of 110.30 and a 112.60 stop.
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