Dear Traders,
While the British pound surrendered to the U.S. dollar strength, the euro was able to temporarily stop its decline at 1.0550. Federal Reserve Chair Janet Yellen gave the go-ahead for tighter monetary policy by signaling confidence in the outlook for economic growth and rising inflation. She warned that delaying rate hike too long could force the central bank to tighten too quickly later. In addition, a stronger than anticipated ADP report has helped the USD gain more attraction.
Green light for a Fed liftoff - But what is the ECB going to do today?
All eyes will be on the European Central Bank's monetary policy decision, scheduled for release at 12:45 GMT with a following press conference led by ECB president Mario Draghi. There is no doubt that central bank will ease policy. The big question is how aggressive the policy action will be. The ECB is expected to extend the QE end date and cut the deposit rate by 0.1 or 0.2 percent. The expectations are very high and so there is greater potential for disappointments. While a 0.1% deposit rate cut could be considered as a soft action, a 0.2% cut would be a more aggressive move. How the euro will react, whether it will fall or correct, will therefore depend on the details. The more aggressively the ECB will announce additional measures, the more pressure will be on the EUR/USD. If Draghi fails to deliver, the euro could quickly bounce back toward 1.07 and 1.0760.
Let's be surprised and prepare for big moves.
EUR/USD
The euro remains trading within its downward channel. The resistance line is currently at 1.0650, whereas the support line is at 1.05. Whether the euro will overshoot these levels will hinge on the ECB's actions and Draghis comments.
Bullish scenario: Buying euros on a possible short squeeze could be risky as the upwards moves may be limited given the positive prospects for the USD. Thus, buy attempts above 1.0640 could be a premature investment, as the 1.0650-mark may act as resistance. The next hurdle is around 1.0665. Chances are that a break above 1.0670 could drive the pair toward 1.0710 and 1.0760.
Bearish scenario: Selling euros could be rewarding as soon as the pair breaks below 1.0540. The next target will be at 1.05 - a strong support area. Below 1.0490 the focus will turn to the March low around 1.0470. If the euro falls through all lower levels, parity is a reasonably possible option for EUR/USD.
Moreover, Yellen will have another chance to elaborate on the Fed's monetary policy path in her testimony before the Congress's Joint Committee today at 15:00 GMT. From the U.S. we also have the ISM Non-Manufacturing scheduled for release at 15:00 GMT.
For sterling traders the U.K. PMI report, due for release at 9:30 GMT could be interesting to watch.
We wish all traders a successful trading day and good profits.
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