Dear Traders,
We welcome you to the trading month of February. We look back on a successful first trading month of the year and given investors' increased risk appetite we expect the currency market to remain volatile, providing traders new profitable opportunities - Let's wait and see.
Last Friday both major currency pairs went into a tailspin after the Bank of Japan surprised the market with negative interest rates. The British pound dropped more than 150 pips from our short-entry, marking a fresh support area at 1.4150. Although the euro came under pressure, the currency pair remained confined within a trading range of 200 pips, trading recently between 1.0965 and 1.0815.
The U.S. dollar will be back in focus this week ahead of the much-awaited U.S. Payroll report, due for release on Friday. After payrolls surged by 292k in December, exceeding all expectations, Friday's report may remain slightly behind the recent uptick, showing a lack of wage growth weighing on inflation. As the Federal Reserve is aiming for maximum employment and price stability, the labor market report is of utmost importance for the Fed's further monetary policy path. Thus the U.S. dollar could show signs of weakness in case of a softer report.
Furthermore, market participants will pay close attention to central bank speak, with ECB President Mario Draghi scheduled to speak on Monday and Thursday. Thursday will also be an important day for sterling traders as the Bank of England is scheduled to release its Quarterly Inflation report alongside the BoE interest rate decision and MPC minutes. The inflation report and comments from BoE Governor Carney should have a major impact on the GBP/USD.
GBP/USD
The GBP extended its recent upward channel, marking a lower support line at around 1.4160. For the time being, we expect the cable to trade within that channel between 1.4425 and 1.4170/60. On the upside, the resistance level at 1.4360/70 may limit gains.
EUR/USD
Despite the sideways trading range, we see a higher likelihood of upcoming bearish momentum, which could be attributed to a downward channel in the 4-hour chart. Traders should bear in mind that, before sliding towards lower targets, the euro would first need to break below the 1.0770-level. Afterwards the euro could be prime for a test of 1.0650. However, on the upside we will shift our focus to the 1.0960-level, where we see a current resistance.
There is a big economic calendar this week and interesting data is already due for release today with the German Manufacturing PMI (8:55 GMT), U.K. Manufacturing PMI (9:30 GMT), U.S. Personal Consumption Expenditure Core (13:30 GMT) and the ISM Manufacturing Index (15:00 GMT).
Furthermore, ECB president Mario Draghi is scheduled to speak at 16:00 GMT today.
Traders should expect volatile fluctuations throughout the week and we wish everyone many profitable trades.
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