Market spotlight turns to ECB
This week's main event will be the European Central Bank (ECB) latest rate decision and monetary policy statement on Thursday, plus the monthly trilogy of UK key numbers: unemployment, inflation, and retail sales.
For the ECB, a full assessment of the pace of asset purchases will not happen until June so this week’s meeting is likely to be uneventful, but the market will be focused on the tone, which is likely to center around the continued downside risks of the virus.
The US Dollar is coming back bid to start the week after lower US yields took the buck lower across last week. US yields still haven’t recovered but seems some dip buyers emerging in USD after the sharp move lower last week. EURJPY under pressure after topping out again ahead of the March high at 130.69. EURUSD bringing in technical sellers after forming a double top last week, high of 1.1995 on Friday. Short EURUSD still makes sense. Next level on the topside being the 100-day MA at 1.2058 in case the 1.1985 resistance is taken out.
We still expect the same story of divergence between US and EU growth due to the speed of vaccine rollouts. The Fed will be increasing rates a long time before the ECB does and that is when this divergence trade will really come into play. We feel as if pull back in US yields has run its course and the position reduction move is over.
Finally, USDJPY couldn’t break back above 109.00 last week, and it feels that crossJPY is in for a deeper pull back as positioning that was put on in the run up to Japan fiscal year end is yet to fully capitulate.
Overview and outlook of major FX currency pairs
EUR/USD
The Euro finished the week on a softer tone after failing to crack the 1.1985 level. This week investors prepare for Thursday’s ECB monetary policy and interest rate decision followed by the Eurozone PMI report on Friday. Until then, the short-term trend remains bullish, technically speaking, however the 1.1985 level is still a key pivotal resistance level. A sustained move above it will signal a shift of the long-term from bearish to bullish.
GBP/USD
After moving above the 200-period moving average on the hourly timeframe, and trading through the 1.38 resistance now turned support, GBP has finally pivoted back to bullish against USD after a monthly long correction. Moreover, this morning, the British Pound is attempting to cross the 1.3845/50 trendline resistance, with a trade through it to trigger more buying interest with 1.3915 as next upside target.
USD/JPY
USDJPY fell below the ¥108.60 support, on a weak US dollar, but on the daily scale, the trend is still up despite sell orders around ¥108.80 - ¥109 limiting upside since the beginning of April. In addition, the RSI on the hourly timeframe is almost below 30 signaling fading downside momentum, and therefore a correction higher is expected in the near term.
Reference: FXStreet
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