ECB meeting in focus

Forex News and Events

ECB monetary policy to remain unchanged (by Yann Quelenn)

There is not much to expect from the EBC meeting later today. President Draghi should announce that current monetary policy remains unchanged since the last deposit rate cut in December from -0.2% to -0.3%. For the time being, however, we believe that the lack of inflation will certainly push Draghi to announce that further easing is at least possible. Indeed, as we know inflation has not picked up since the beginning of the QE programme last year. Worryingly, the outlook appears even weaker than it did at December’s meeting. Global turmoil, particularly lingering low crude oil prices will keep pressure on the Eurozone CPI. Consequently, there is a good chance that the ECB’s inflation expectations for 2017 will be lowered. In our view it will certainly be 1%.

Last but not least, Draghi is taking a very measured approach to stimulus out of concern for the central bank’s credibility. History has taught us that both QEs in Japan and in the US have proven to be less than 100% efficient. In any case, we feel that policymakers are currently waiting to collect more data, especially preliminary Q4 Eurozone GDP which will be released next week. Disappointing figures will pave the way for further stimulus at the next meeting in March. For the moment the EURUSD should not move much on today’s meeting.

Reflection Point for Oil Price? (by Peter Rosenstreich)

Oil continues to come under selling pressure with WTI price dropping to $26.19. The spillover effect has sent investors into risk-off mode and volatility surging across assets class as weak oil has feeds fears of slowing global demand (recession theories rampant). We anticipate that oil could see more downside as production glut remains dominate. However we can see a reflection point around March. The start of 2Q should bring a convergence of events allowing oil prices to recover marginally as the Fed will hold back raising interest rates (but not reverse hikes as some theories suggest), production cuts will allows equilibrium with demand and fiscal and monetary actions in China will take effect supporting global demand. In the current climate we are short commodities linked and EM FX.

Gold - Back Above 1100.

The Risk Today

Yann Quelenn

EUR/USD lies in a short-term uptrend channel. Hourly resistance may be found at 1.1096 (28/10/2015 low) while hourly support can be found at 1.0524 (03/12/2015). Expected to show further increase. In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).

GBP/USD is now consolidating after breaking key support at 1.4231 (20/05/2010 low). Hourly resistance is given at 1.5242 (13/12/2015 high). Stronger resistance can be found at 1.5336 (19/11/2015 high). Expected to show further weakness below 1.4000. The long-term technical pattern is negative and favours a further decline towards the key support at 1.4231 (20/05/2010 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USD/JPY is declining. Hourly resistance lies at 123.76 (18/11/2015 high). Hourly support at 116.18 (24/08/2015 low) has been broken but the pair fell to further decline. Expected to show continued weakness. A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 116.18 (24/08/2015 low).

USD/CHF's uptrend momentum seems to fade around 1.000 even if the pair remains in the upward channel. Hourly support is located at 0.9876 (14/12/2015 low) while hourly resistance can be found at 1.0125 (05/01/2015 high). Expected to monitor hourly resistance at 1.0125. In the long-term, the pair has broken resistance at 0.9448 and key resistance at 0.9957 suggesting further uptrend. Key support can be found 0.8986 (30/01/2015 low). As long as these levels hold, a long term bullish bias is favoured.

Resistance and Support: