Daily Analysis | 25 January 2018
The ECB is to announce it’s interest rate decision today and is expected to remain on hold at 0.0%. Currently, the market has priced in the probability at 97%, according to Overnight Indexed Swaps (OIS). The main focus is expected to shift to the accompanying statement and the especially the following press conference. Every single word will be scrutinised by investors in the search for more clues about the future of ECB’s rate hike path or the Quantitative Easing (QE) program. We expect that no shift in policy will be announced yet as we are at the beginning of the year and it may be too early for such a shift. We also expect that there could be some comments about the QE program, however, none about raising interest rates. Analysts also suggested that it may be the case that this time the mentioning of the possibility of ECB extending their QE program beyond September will be left out. Additionally/alternatively, it could be the case that they may drop out any possible reference on extending the size of the program. Overall the message could be expected to be more balanced than previous ones, which were more on the dovish side. We see the case, however, for the forward guidance to evolve gradually, over time. Next change, to be in March, is expected to be a bit more hawkish to balance the statement even more. Contrary to yesterday’s analysis that the EUR/USD would move sideways with a bearish tone, the pair moved clearly in a bull’s market and broke the 1.2355 (S1) resistance level (now turned to support) as predicted in the bullish scenario. We expect the pair to continue in a bullish manner due to the US Dollar weakness, however, we also expect the USDollar to stabilise somewhat during the day and the pair to continue to move in a more sideways manner. Eurozone’s financial data, as well as the ECB interest rate decision along with the following press conference and the accompanying statement, should influence the pair heavily. The US new houses stats should be neutral towards the pair as the forecast is for it not to move as much. Should the bulls continue to have control of the pair we could see it breaking the 1.2495 (R1) resistance level and aim for the 1.2600 (R2) resistance hurdle. On the other hand, should the bears take the reins we expect the pair to break the 1.2355 (S1) support line and aim for the 1.2230 (S2) support barrier.
- Support: 1.2355(S1), 1.2230(S2), 1.2100(S3)
- Resistance: 1.2495(R1), 1.2600(R2), 1.2770(R3)
As for today’s economic highlights:
In the European morning, we get the Ifo Business Climate Index for January, ECB’s interest rate decision and later on we get the Canadian retail sales for November. At the same time, there will be a press conference, where Mario Draghi will answer questions about the ECB’s interest rate decision and monetary policy. Last but not least we get from the US the New Home Sales for December which could support the weak US Dollar should there be a surprise reading as the current forecast is rather neutral. The US Dollar weakened across the board yesterday as a result of the various news regarding the US Dollar and the effect weakened the US Dollar the most, once the US finance minister Mnuchin stated that a weak US Dollar is good for the US trade. Evident of the overall effect would be the direction of USD/JPY, which yesterday, broke the 109.90 (R2) support line and the 109.30 (R1) support level (both now turned to resistance levels). We expect the pair to remain under selling interest, however as mentioned before we expect the US dollar to stabilize somewhat during the day and for the pair to continue to trade in a rather sideways manner. Should the pair continue to be underselling interest throughout the day, we could see it breaking the 108.60 (S1) support level and aim for the 108.03 (S2) support barrier. Should it, however, come under buying interest, we could see the pair breaking the 109.30 (R1) resistance line and aim for the 109.90 (R2) resistance zone.
- Support: 108.60(S1), 108.03(S2), 107.56(S3)
- Resistance: 109.30(R1), 109.90(R2), 110.45(R3)
All trading involves risk. It is possible to lose all your capital