ECB and BOE unchanged, US Nonfarm Payrolls next

Yesterday, two most important economic events were scheduled. The ECB and BOE interest rate decisions were on the tap. There was no surprise from the BOE, as the central bank kept the interest rates as it is at 0.5%. This was broadly expected from the market. So, the reaction from the sterling was also not great. The statement was copy print, which stated that “the Bank of England’s Monetary Policy Committee today voted to maintain Bank Rate at 0.5%. The Committee also voted to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.”

The GBPUSD pair traded higher just after the announcement, but the sellers pushed the pair down again within a matter of minutes. However, the 1.6700 level provided support to the pair, and the pair managed to jump higher again. The minutes of this BOE meeting will be published at 9.30 a.m. on Wednesday 19 March 2014. These minutes will be the one to keep an eye on, as the pair is searching for direction for quite some time now.

Later, the ECB announced the interest rates, and they also maintained the bank rate at 0.25%. The opening statement highlighted that “the incoming information confirms that the moderate recovery of the Euro area economy is proceeding in line with our previous assessment. “ This was surprising, as some of the economists were expecting a 0.10% rate cut. On the other hand, some investors were hoping that the central bank would end the sterilising of its Securities Market Programme (SMP) bond holdings. None of this happened, which lifted the Euro. Even, no changes in the monetary policies were introduced. The statement says “We are monitoring developments on money markets closely and are ready to consider all instruments available to us. Overall, we remain firmly determined to maintain the high degree of monetary accommodation and to take further decisive action if required.” The EURUSD traded above the 1.3800 level, which has acted as a crucial barrier for the pair numerous times.

The highlight was the ECB press conference in which Draghi’s comments were not dovish, and as a result the European markets were lifted. In fact, the ECB upgraded their growth forecasts and raised the expectations for the Euro zone economic growth. The ECB now expects the 1.2% GDP rate in 2014, and the inflation forecast was revised down from 1.1% to 1.0%. We need to keep in mind that the expectations are higher now, and any miss in the data in the coming weeks might weigh a lot on the EURUSD. It is somehow clear now that the ECB needs some substantial reasons to act. The next ECB meeting is scheduled on April 3, 2014.

Moving ahead, today is another important day, and possibly the most important day of the week. The US Nonfarm payrolls and the unemployment rate are scheduled to be released during the NY session. The recent data for the US was disappointing, and the market was not at all impressed by the economic data. So, one more miss could trigger pressure selling in the US dollar.

The market is expecting a gain of 149K jobs in the last month. Remember, the last reading missed the expectations at around the 113K due to the bad weather. The unemployment rate is expected to remain stable at 6.6%. The figure shown below clears that the last two NFP readings were disappointing. We have the Fed rate decision in the coming weeks, and another poor jobs data might impact the fed’s decision to taper. The fed has mentioned time and again that only a substantial change in the outlook could change the taper plans. So, this upcoming event holds the key for the US dollar in the short to medium term, as the impact can be huge. On the other hand, a positive outcome might push the US dollar higher.

Technically, the EURUSD traded higher above the 1.3850 level yesterday. The pair is consolidating in a range, and I think we can witness another round of swing moves in the NY session. There is a triangle forming, as can be seen in the chart shown below. So, we need to keep a close eye on the triangle in the short term.

So, keep an eye on all in the incoming economic data friends and trade accordingly.

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Happy Trading Friends!

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