I am not that much into economic news, I am a programmer, but with the help of my friend John we put together this blog post about current market situation. Hope you’ll like it.
Historically, manual traders who do the largest amount of research and market analysis are the ones who tend to do the best. The more they study the more they are aware of how current events are ever-shaping the prices of major currency pairs. We should take a look here at one of the important news releases that hit us this week and analyze how it might impact future values. Mainly we’ll look at the ECB Announcement regarding interest rates as it relates to the Euro and Pound pairs.
ECB Remains In Focus As EURUSD Buyers Sense 1.40
- European Central Bank (ECB) is expected to keep the key interest rates unchanged. (Review upcoming news releases posted by ForexFactory)
- Market awaits Draghi remarks regarding recent economic data and Euro’s strength.
- Band of England will also announce interest rates later during the day.
- AUDUSD trading higher post solid employment numbers.
The Euro remains elevated against the US dollar after breaking an important resistance zone at 1.3880. The Euro buyers now waiting patiently for the upcoming risk event to decide on the next move. It is important to mention that the pressure on the ECB is increasing, as the ECB’s President Mario Draghi has previously mentioned that the Euro at higher levels might be dangerous for the Euro zone economy. So, it would be interesting to see what the central bank and Draghi have to say about the current levels of EURUSD. Some of the economists are expecting the ECB to introduce QE in the next meeting if not reduce the interest rates further.
The latest run above the 1.3920 level stalled right around an important trend line connecting all the recent swing highs. As of writing the pair is heading lower, and breached the 23.6% fib retracement level of the last leg higher from the 1.3785 low to 1.3956 high. The next support can be seen at around the 38.2% fib level, which also represents the previous swing high at 1.3888 level. If the pair falls below the mentioned level on dovish ECB, then there are two important support levels, which might hold the downside in the pair. The 61.8% fib level is coinciding with 100 simple moving average on the 4 hour timeframe at 1.3853. This support level might act as a swing zone for the pair, and it would be interesting to see if the pair can trade below the same. Similarly, 76.4% fib coincides with the 200 SMA, which might also act as a short-term support if the pair turns lower.
On the upside, the previous high at 1.3950 level might continue to act as resistance, followed by the highlighted trend line at 1.3960. Any further gains should find sellers around all-important 1.40 level. One need to keep a close eye on the ECB press conference, as it can cause some heavy movements in the pair.
Earlier during the London session, the German industrial production data was published by the Statistisches Bundesamt Deutschland. The market was expecting a 0.2% rise. However, the outcome was on the disappointing side, as in March production in industry was down by 0.5% from the previous month on a price, seasonally and working day adjusted basis according to provisional data of the Federal Statistical Office (Destatis). The report also mentioned that the “energy production was up by 1.8%. The production in construction was down by 2.2% in March 2014”.
The Euro buyers were unfazed by the outcome, and instead of moving lower the pair was seen trading a touch higher after the release. This is mostly due to the market is stuck in a range ahead of the important risk event.
The British pound is trading lower against the US dollar intraday as the market awaits the BOE interest rate decision. There is no change in the policy expected by the BOE. So, this might turn out to be a non-event moving ahead. However, it would be interesting to see whether the pair can regain the buyers to challenge the recent high at 1.6995 again. Furthemore, the buyers would face a huge challenge in the form of 1.70 level.
Technically, there is a critical triangle forming on the daily chart. The recent run towards the 1.70 stalled right around the triangle resistance. The triangle is contracting, and heading towards a break in the medium term. On the downside, the support lies at around the 1.6840 level. This level represents the triangle support zone along with the previous swing high. A break below might be very bearish for the pair, and could take it all the way back to 1.6600 level.
On the upside, the triangle resistance is right around the 1.70 level. So, this level holds a lot of importance in the short to medium term. The BOE is not expected to act as a catalyst for the pair. The market sentiment and the incoming data might provide buyers or sellers a reason to take the pair higher or lower.
Yesterday, the Fed Chairwoman Yellen testified in front of the Joint Economic Committee of Congress. She mentioned in the testimony that “many Americans who want a job are still unemployed,” and “inflation is below the central bank’s 2 percent target”, according to the Bloomberg. Moreover, she also mentioned that high degree of accommodation remains warranted, and labor market conditions are far from satisfactory. There was nothing much to get into, as she mostly re-iterated what she said earlier. The market was broadly unmoved during her speech, and the US dollar traded mostly in a range against the Euro and the British pound.
One of the major movers intraday remains the Australian dollar against the US dollar. The AUDUSD jumped more than 30 pips during the Asian session, as the Australian employment report was published by the Australian Bureau of Statistics (ABS). The forecast was slated for 0.1% rise in the unemployment rate from 5.8% to 5.9%. However, the outcome was better than expected, as the unemployment rate remained at 5.8%. This boosted the AUDUSD pair in the short term.
Key Points On ECP News Release
- European Central Bank (ECB) kept the key interest unchanged as expected.
- The Euro traded just shy of the 1.40 level against the US dollar during the ECB press conference.
- Draghi hints of an action in June, which caught the attention of Euro sellers.
- GBPUSD is also trading lower despite no change in policy from the Bank of England.
The market sentiment shifted largely in favor of the US dollar during yesterday’s London and New York session. One of the main drivers was the ECB press conference. In a post earlier, I mentioned a possibility of the pair moving towards the 1.40 level. The pair climbed higher after the interest rate announcement and during the opening statement of the ECB’s press conference. However, later during the press conference the ECB President Mario Draghi strongly suggested that the central bank board members discussed a possible action in the upcoming meeting in June if the economic data fades further. This did not go down well with the Euro buyers, as the sellers took charge and pushed the EURUSD pair more than 150 pips to break and close below the all-important 1.3880 level.
There was a major trend line on the 4 hour timeframe for the EURUSD pair, as highlighted in the yesterday’s analysis. The pair jumped above the trend line during the early part of the New York session, but soon after the Draghi’s remarks the pair dropped hard to trade back below the trend line. So, it turned out be a false break for the pair. The last few candles on the 4 hour timeframe looks a lot bearish, which means that the recent move lower might have legs. However, there are few important things which one need to consider before chasing more weakness in the EURUSD pair.
First and foremost, the pair is now approaching a critical support area of 50% fib retracement level of the last leg higher from the 1.3672 low to the recent 1.3994 high. This level might act as a strong barrier for the Euro sellers in the short term. The second thing to consider here is that the pair also has an important support in the form of a major confluence area of a trend line connecting two previous low and 200 simple moving average on the 4 hour timeframe. So, there are a lot of reasons for the Euro bears to step aside, as the buyers might appear around the mentioned levels. As of writing, the pair is flirting with the 100 simple moving average on the 4 hour timeframe, and looks like the pair might continue to struggle during the London session.
If the pair breaks lower and closes below the mentioned trend line, then it can be seen as a critical break in the pair, which could take it all the way back to the 61.8% fib level, followed by the previous swing low at 1.3760.
On the upside, if the pair bounces, then the previous swing high at 1.3880 level might again come into play and act as a resistance for the pair. Any further gains should find sellers around the 1.3910 level. It would be really hard for the Euro buyers to take the pair higher above the mentioned resistance zone, as the market sentiment has now tilted in favor of the sellers. If the incoming data for the Euro zone comes out positive in the coming days, then the possibility of the pair heading back higher would increase.
Earlier during the London session, the German trade balance data was published by the Statistisches Bundesamt Deutschland. The market was expecting a surplus of 16.6 billion Euros. However, the outcome was on the negative side, as in March foreign trade balance in seasonally adjusted terms, showed a surplus of 14.8 billion Euros. The positive side of the story was that the previous reading was revised up from 15.7 billion Euros to 15.8 billion Euros, according to provisional results of the Deutsche Bundesbank. The report also mentioned that the German imports decreased by 0.9% and exports decreased by 1.8%.
This was certainly disappointing, as the market was expecting 0.5% gain in imports and 1% gain in exports. After the data release, the pair was seen trading lower towards the 1.3820 level. The chances of a test of the mentioned support zone increase after the disappointing data.
The British pound is also trading lower against the US dollar intraday as the market sentiment turned bearish, and pushed the GBPUSD pair lower. Yesterday, the BOE announced the key interest rates. The central bank introduced no change in the policy, as expected by the market. However, the pair moved lower, and currently forming an awkward looking triangle on the hourly timeframe. The pair has continuously held the triangle support trend line, and found resistance in the form of the upper trend line. The important thing to note here is that the pair is now trading below the 100 hourly simple moving average. This is a negative sign, but we cannot ignore the triangle support area. Moreover, the 50% fib retracement level of the last up-move from the 1.6822 level to the recent 1.6996 high sits just around the triangle support area. So, this might act as a strong support for the pair in the short term.
If the pair fails to hold the mentioned support zone, then it might head lower towards the 61.8% fib level. This level also has the 200 hourly simple moving average. So, this could also act as a barrier for the sellers moving ahead.
On the upside, the triangle resistance might continue to cap the upside in the pair. If the buyers need to take the pair higher, then they have to break the triangle resistance zone.
What does this ECB Interest Rate Decision mean for you as a trader?
It really depends entirely on what kind of trader you are. If you are a robot trader then it will likely have little impact. But if you are a manual trader then these levels and the up-and-down reaction on the Euro pairs from the ECB announcement might have you shaking your head a little bit. If you are a news trader then you need to read this article on how to trade news breakouts using range breakouts, similar to this one here with the ECB announcement.
Let’s talk about what this means… News events like this can often cause some non-trending/flat markets and this has been the case for the past couple of months in many ways. I believe this may have had something to do with the fledgling performance of the DailyF robot, which did fantastically well the end of last year but has struggled to gain ground this year so far. This is one of the reasons why I implemented some important changes to DailyF in order to help it when markets are range-bound and not experiencing solid breakouts.
Are you using key levels, chart patterns and news releases like this one in your trading? Do you think that following the news is a waste of time when it comes to currency trading? Do you prefer strictly chart/technical analysis or are you a fundamental value trader who considers the actions of governments? Please put your questions and comments and answers here below and let’s talk about this.