- Markets effectively did a U-turn against Tuesday’s moves, seeing the USD broadly weaken whilst equities and commodities rallied.
- That said, losses were not fully recouped for equities. And as there was no apparent trigger for the reversal in sentiment, it appears to be a technical move with traders booking profits and bargain hunters lifting markets from their lows.
- Commodity FX (AUD, NZD and CAD) were the strongest of the session, and all but USD/JPY and EUR/USD exceeded their ATR’s to show bullish range expansion.
- As expected, BOC held interest rates at 0.25% and will continue their QE program of CA $5bn per month.
ECB Monetary Policy Meeting (9:45pm Sydney, 11:45pm CN):
- 9:45pm: Interest rate decision
- 10:30pm: Monetary Policy Statement and press conference
- 03:00am (Friday): ECB President Christine Lagarde speech
Today’s main event is ECB’s monetary policy meeting. Whilst no change to interest rate is expected, traders will listen for any comments surrounding the stronger euro which is at risk of slowing Europe’s recovery. Whilst ECB do not target their currency as part of their mandate, their Chief Economist did state that the “currency does matter”. So, we could either see a weaker euro if they express any concerns over its strength, or a stronger euro if they make no mention of it.
Furthermore, with a negative inflation rate and weaker business confidence due to the latest surge of coronavirus cases, ECB may lay out plans of further stimulus later this year.
The press conference is more likely to be the volatile event as this is when they will likely be asked about the exchange rate, assuming they don’t mention it themselves.
EUR/JPY: Holding Steady Ahead of ECB’s Meeting
Whilst EUR/USD is the more popular currency pair for intraday traders, EUR/JPY is currently providing cleaner price action with levels which may better serve a reward to risk ratio.
A word of caution: The strength of the Euro could be a key part of tonight’s ECB meeting so EUR pairs are vulnerable to bursts of volatility (in either direction).
- The daily chart produced a bullish outside day above the 50-day eMA to confirm support around 124.30. Therefor the bias remains bullish whilst prices remain above 124.30.
- Due to several resistance levels sitting above 126, we would only consider bullish setups on intraday timeframes to help the reward to risk ratio.
- A break below 124.30 targets the lows around 123.00.
GBP/JPY: Trend Remains Bearish, But Retracement Could Extend
- The downside break of the trendline was hard and fast. After the decline stopped near the 200-day eMA, mean reversion against the trend appeared likely.
- A counter-trend bounce is underway but our core bias remains bearish.
- A break above 138.35 targets the zone between 38.2% and 50% retracement levels.
- Bears could consider fading into (selling) between the 38.2% and 50% Fibonacci levels, and target the lows around 137. Although they may want to wait to see evidence of a lower high or topping pattern forming first.
Silver (XAG/USD): Ready to Follow Gold’s Lead?
- With gold nudging its way higher, we’re curious to see if silver will follow suit and break higher. Although whilst they generally have a positive correlation, its not perfect on a day-by-day basis.
- A bullish hammer confirms support around $26 and yesterday’s small, but bullish engulfing candle suggests a breakout could be pending.
- Traders could take a break above this week’s high as indication it could head towards the highs just above $28.
- A break below $26 invalidates the bullish bias.
Gold: Bias remains bullish above 1900-1910 support zone, targeting the highs around 1976-1992. Intraday setups preferred over the near-term. View yesterday’s chart
USD/CAD: Prices pullback from resistance as suspected, although bearish momentum was stronger than we’d have liked. Price need to hold around current levels and consolidate before considering longs in our view. If bearish momentum persists, it will be removed from short watchlist.
EUR/NZD: Removed from long watchlist, after reversing just shy of our 2nd bullish target. We were waiting for a gentle retracement but, yesterday’s bearish 2-bar reversal candle means momentum is too strong for our liking.
GBP/CAD: Reached 1.7000 target. As prices have stalled at key support, it vulnerable to a retracement or consolidation period.
NZD/JPY: Removed from watchlist due to bullish piercing line pattern.
USD/CHF: Removed from ‘short’ watchlist, given yesterday’s bearish engulfing candle.
GBP/JPY: Prices crashed lower and found support at the 200-day eMA. The bias remains bearish, but we would prefer to see consolidation or a retracement before reconsidering shorts.