USD Drops And EUR Rallies Ahead Of ECB Rate Decision

All eyes are on the ECB on Thursday with the market expecting a hold on rates, although Draghi has recently shocked the markets with a rate cut so there may be more surprises up his sleeve, although perhaps from other sources of stimulus. There remains a lingering rumour regarding negative deposit rates for the ECB, which is a big enough rumour for the SNB to outlay their plans to follow suit if the ECB go in that direction.

We don’t expect much more than a box ticking exercise from Thursday’s BOE meeting, with Carney having recently pepped the market quite well on the current outlook from the BOE. UK Services PMI was poorer than forecast which pushed cable lower only to eventually be bought again, ending the day looking quite bullish. this was helped by a better than expected ADP Non-Farm Employment Change although the shine soon came off when US ISM came in below par, causing the dollar rally to reverse again.

USD% Index

Not even upbeat ADP could stop the rot, with the USD index dropping lower following a poor ISM. This is more in line with technical expectations rather than a pure fundamental play though and was a result of positioning ahead of the ECB rate decision on Thursday and Yen strengthening pushing USD/JPY lower. We need to break the bottom of the current channel to really get thing going to the downside though. I am mildly bearish USD

USD% Index Resistance (EUR/USD support): EUR/USD 1.3621, 1578, 1.3541
USD% Index Support (EUR/USD support): EUR/USD 1.3662, 1.3685

EUR% Index

Mixed Euro PMI and poor EUR retail sales combined with strong dollar data for the first half of the day and pushed EUR% lower, but this was reversed when the poor ISM came out, with the index ending the day flat having printed quite a bullish daily pin bar. As such this suggests the market expects upside from Thursday, although we will need to battle through the chop first. Overnight there was further bullishness from the index ahead of the ECB rate decision, which is widely expected to be a hold on rate to push the index higher.. I am bullish EUR

EUR% Index Resistance: EUR/USD 1.3671, 1.3700, 1.3864, !!! 1.3780 !!!
EUR% Index Support: EUR/USD 1.3600, 1.3595, 1.3500

JPY% Index

The Nikkei and USD/JPY continue to sell although the pace of selling has diminished. Nevertheless, there has been a break to the downside and that remains the preferred bias for the short term. JPY having tested yearly lows is due a decent profit taking bounce before another challenge on the bottom again. Currently testing to break the bearish channel we may see a further break to the upside. Trend remains bearish JPY but we expect a bounce from here in the short term

JPY% Index Resistance (USD/JPY Support): USD/JPY 101.38, 101.00, 100.40
JPY% Index Support (USD/JPY Resistance): USD/JPY 102.70, 103.00

GBP% Index

Bullish momentum for the pound has fallen lately although a meaningful drop lower has also failed to appear. GBP/USD also posted quite a bullish daily candle to counter the previous day’s bearish daily candle, which also suggests upside. The recovery after poor UK data backs up this assumption. Buying in EURGBP (shown at the bottom) may hinder the rally again somewhat though. I am bullish GBP although we may see a correction lower before a continuation

GBP% Index Resistance: GBP/USD 1.6436, 1.6500
GBP% Index Support: GBP/USD 1.6361, 1.6240

AUD% Index

Yesterday’s poor GDP figures for Australia pushed the currency lower considerably with it the worst performer of the majors. It has now had a slight pull-back, but entirely due to Dollar weakness rather than Aussie strength. Downside is expected as soon as we meet dollar support I am neutral AUD

AUD% Index Resistance: AUD/USD 0.9082, 0.9116, 0.9184
AUD% Index Support: AUD/USD 0.9022, 0.8078, !!! 0.8950 !!!

CHF% Index

CHF bullishness is slightly outpacing EUR again,with a push up to the top of what would be the left shoulder of a medium time-frame head and shoulders formation. We need to break this level before confidence in bullishness can be found and to prevent bears entering. With luck the ECB may help break that level if the outcome is as widely expected. I am bullish CHF

CHF% Index Resistance (USD/CHF support): USD/CHF 0.8990, 0.8927
CHF% Index Support (USD/CHF resistance): USD/CHF 0.9023, 0.9088, 0.9142