The Bank of Japan's lack of action on Thursday confounded market expectations that the central bank would announce additional stimulus to boost country's economy and combat lower inflation. The surprising BoJ inaction triggered a knee-jerk reaction in the USD/JPY pair, which nosedived to register its largest single day drop since mid-March 2009. Sharp USD weakness against JPY spilled over to other major currencies as well. The GBP/USD pair managed to close above 1.4600 handle for the first time since Jan. 7 and the EUR/USD continued to build on to its recent gain.
The greenback remained under pressure even during the US session after a government report showed US economy growing at the slowest pace in two years. The US economy recorded an annualized growth of 0.5% in the first three months of 2015 as compared to 1.4% growth in the last quarter of 2015 and against expectations of 0.7% growth.
On Friday, the GBP/USD pair continued climbing higher and is now trading at the highest level since February. The EUR/USD pair, too, has now moved closer to the very important 1.1400 handle. With relatively lighter economic calendar, featuring the release of Chicago PMI and revised UoM Consumer Sentiment index from the US, the greenback might continue to sulk lower for the rest of the trading day.
Technical Outlook
GBP/USD
After testing a short-term ascending trend-channel support on Thursday, the pair rebounded smartly and is now trading above 1.4650 level. From current levels, a more above Feb. high (1.4665-70) is likely to boost the pair toward testing the trend-channel resistance, currently near 1.4750-60 area. 1.4700 round figure mark could be seen as an intermediate resistance.
On the downside, previous strong resistance near 1.4620 level now seems to act as immediate support for the pair. Dip below this immediate support could be short-live and is likely to get bought into near 1.4600-1.4590 region. However, a sustained weakness below 1.4600 handle could be the first signs of some near-term profit taking move, dragging the pair back towards testing the trend-channel support, currently near 1.4550-45 zone.
EUR/USD
The EUR/USD pair, too, has been inching higher within a short-term ascending trend-channel and is trading close to the trend-channel resistance near the very important handle resistance near 1.1400 level. A convincing break-through this 1.1400 resistance zone might is likely to accelerate the gains immediately towards April highs resistance near 1.1460-65 zone.
Alternatively, inability to conquer a strong resistance and a subsequent reversal might drag the pair back towards 1.1360-50 support, which if broken could lead to a further downside pressure towards testing the trend-channel support near 1.1330 area. A sustained weakness below the trend-channel support might force traders to unwind their short-term bullish bets and thus, opening room for further downslide in the near-term.
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