The U.S. dollar strengthened against all of its major peers after Fed Chair Yellen spurred expectations for a next rate hike in March. Yellen's speech came after we have finished our trading, so we did not benefit from the greenback's recovery. Yellen said that she and most of her colleagues expect "a few hikes this year" while she refrained from providing exact dates. She reiterated that rate hikes would depend on economic data over the coming months but given the fact that FOMC members expect three rate increases this year, the focus gradually shifts to a March rate hike.
EUR/USD: The euro dropped towards 1.0620 on a strengthening dollar and we now focus on a break below 1.06. While a brief descent below 1.06 might not be enough to reinvigorate fresh bearish momentum, the currency pair would need to break the 1.0570-level significantly in order to fall back towards 1.05 and 1.0430. On the topside we expect the 1.0670/75-level to act as short-term resistance. Above that level the focus shifts to 1.0750.
Today, euro traders will pay attention to the first 2017 interest rate decision of the European Central Bank. The ECB is widely expected to maintain its current policy but the focus will be on the ECB's press conference led by Mario Draghi. The ECB president is likely to insist that the central bank's QE program must continue to safeguard the recovery in the euro area. However, with inflation picking up the ECB might tend to soften its dovish tone which would be euro-positive.
Traders are looking for clues as to whether the recent improvement in the Eurozone is enough for policymakers to start discussing tapering. If Draghi talks about tapering the euro will rise. If he, however, refrains from giving any new insights into the thinking of ECB policymakers today's announcement could prove to be a non-event for traders.
The policy decision will be announced at 12:45 UTC, followed by the press conference 45 minutes later.
From the U.S. we have the Philly Fed index scheduled for release at 13:30 UTC but traders may tend to stay on the sidelines before Trump's inauguration as president.
Here are our daily signal alerts:
EUR/USD
Long at 1.0675 SL 25 TP 20, 40
Short at 1.0610 SL 25 TP 25, 40
GBP/USD
Long at 1.2320 SL 25 TP 20, 50
Short at 1.2220 SL 25 TP 20, 40
We wish you good trades and many pips!
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