|

ECB Preview: time to taper? - Not yet

With the French Presidential election fear out of the way, focus now shifts to the next big event risk - the European Central Bank (ECB) monetary policy decision on Thursday. Despite of the pro-EU candidate winning the first round of the French Presidential elections, most analysts think that the central bank will maintain status-quo and is unlikely to alter its current monetary policy stance. 

At the last meeting in March, ECB President Mario Draghi stressed on downside risks to the outlook, including political uncertainty. But with the incoming polls showing Emmanuel Macron leading in the May 7 run-off, one of the major hurdles to a potential tapering of the current asset purchase facility is now out of the way. Still market participants do not anticipate the central bank to provide any hints regarding scaling back its aggressive easing program, just to avoid any uncertainties before the second round in France is over.

The other reason that could allow the central bank to opt for a more accommodative policy stance is subdued inflation outlook. Since the March meeting, we have seen a sharp fall in the price growth. With headline CPI falling to 1.5%, and core CPI dropping to 0.7%, the central bank is more likely to reiterate to keep monetary policy extremely loose until at least the end of this year. 

In the March statement, the central bank had also reaffirmed that the bond purchased could be extended into 2018, if needed, and that interest rates will remain at present or lower levels even when QE purchases come to an end. Hence, uncertainty as to when the first hints of future tightening will come should eventually result into yet another volatile trading session for the shared currency.
 

Technical outlook

EUR/USD

The pair now seems to have entered a consolidation phase and has been oscillating within 100-pips broader trading range over the past couple of days. Although the pair has held above the very important 200-day SMA, further up-move has been capped at 1.0930-50 confluence region. 

The said resistance comprises of a short-term ascending trend-line and 61.8% Fibonacci retracement level of 1.1300-1.0341 downfall. Hence, it would prudent to wait for a decisive break through this immediate strong hurdle to confirm additional near-term up-move. On a convincing break through this immediate barrier, the pair is likely to extend the rally beyond the key 1.1000 psychological mark towards testing its next static hurdle near 1.1025-30 area.

Meanwhile on the downside, critical support is pegged at 200-day SMA near 1.0840 region, closely followed by 50% Fibonacci retracement level around 1.0820 level (Monday's low). On a sustained weakness below the mentioned supports should accelerate the slide towards 1.0775-70 area, previous resistance now turned support, and a follow through selling pressure has the potential to continue dragging the pair further towards 38.2% Fibonacci retracement level support near 1.0705-1.0700 region.
 

EUR/JPY

With both the BOJ and ECB monetary policy decisions scheduled to be announced in a span of less than 12-hours, the EUR/JPY cross is likely to remain volatile on Thursday. 

From a technical perspective, the pair's aggressive bullish reversal from over 5-month lows, touched earlier this month, happened from 61.8% Fibonacci retracement level of its strong up-surge from June 2016 lows to highs touched in December. The cross subsequently recovered back above the very important moving averages (200-day and 100-day SMAs).

Any further up-move, however, now seems to confront resistance at a short-term descending trend-line, currently near 122.20-25 region. A decisive break through this immediate hurdle would reaffirm near-term bullish bias and continue boosting the cross further towards March monthly highs resistance near 122.85-90 region. 

Alternatively, reversal from the trend-line resistance is likely to attract fresh buying interest near 120.65-60 confluence region, comprising of 100-day SMA and 23.6% Fibonacci retracement. Any follow through retracement below this important support is more likely to remain shallow and could be bought into near the key 120.00 psychological mark support.

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

More from Haresh Menghani
Share:

Editor's Picks

AUD/USD remains below 0.7000 amid light trading

AUD/USD fills a modest bearish gap on Monday, but remains below 0.7000 in the Asian session amid holiday-thinned liquidity. The US Dollar attempts a bounce even as US bond yields pull back from multi-year highs, limiting the pair. Moreover, diminishing odds of another RBA rate hike in November cap the Aussie.

USD/JPY hovers above 158.00 amid Japan/ US holiday

USD/JPY extends its range-bound price action into a new week, trading above 158.00 as bulls remain on high alert amid speculation that authorities will step in to prop up the Japanese Yen. Meanwhile, softer US bond yields keep US Dollar bulls on the back foot and cap the pair's upside. However, geopolitical uncertainties could limit losses for the safe-haven buck amid thin liquidity due to a holiday in Japan and the US.

Gold eases from one-week top, falls below $4,200 as hawkish Fed and Iran risks support USD

Gold attracts some sellers after touching a one-week high earlier this Monday, sliding back below the $4,200 mark during the European session and snapping a two-day winning streak. The US Federal Reserve's hawkish outlook helps limit the downside for the US Dollar, and caps the non-yielding bullion. Meanwhile, crude oil prices fell amid hopes that the Russia-Ukraine energy ceasefire deal will ease global fuel shortages and, in turn, reduce inflationary risks.

Cardano holds above EMAs as recovery builds

Cardano (ADA) reclaims trading above the key support zone on Monday after a 2.85% correction last week. Improving derivatives positioning and constructive technical outlook support a recovery for ADA. Derivatives data shows an improving sentiment among Cardano traders. CoinGlass’ long-to-short ratio for ADA reads 1.01 on Monday, flipping into green territory.

USD/INR: Deep in red below 96.00 as RBI rescues Indian Rupee

After opening significantly higher against the US Dollar (USD) on Monday, the Indian Rupee (INR) clings to recovery gains near 95.80. The pair remains undermined by the Reserve Bank of India’s (RBI) fresh measures to curb US Dollar demand, which has brought relief for the Indian currency.

Has Bitcoin really escaped the macro forces it was built to fight?
Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?