The EUR/USD has been in somewhat of a see-saw ride since the latter part of last week. Macroeconomic events, including the European Central Bank’s interest rate decision and the non-farm payrolls report from the US, have tugged the most traded currency pair back and forth between mid-1.31 and mid-1.30. After last week’s decision by the ECB to lower rates by 25 basis points to 0.50 per cent, and the following news conference by president Mario Draghi, the euro slipped much lower after hitting a two-week high earlier in the week against the dollar. Despite clawing back some of its losses after the US jobs report on Friday, the single currency was again on the back foot at the start of the week.

US employers added more jobs than expected as the jobless rate fell to its lowest level since December 2008

The common currency remained under pressure on Tuesday after the ECB chief reiterated that policymakers stand ready to cut rates further if needed. At last week’s post governing council meeting news conference, Draghi had said that the ECB has “an open mind” towards a negative deposit rate.

The fact they were considering a negative deposit rate, pushed the EUR/USD to 1.3034 by Friday of last week. In a speech in Rome on Monday, Draghi said the bank would be watching economic data closely and will be prepared if the need arises to cut rates further, including the deposit rate which is currently at zero.

EUR/USD plunged again to 1.3054 on Monday from a high of 1.3141. The pair had been lifted by a stronger than expected jobs report from the US on Friday, which led a strong rally in riskier assets and pushed EUR/USD to 1.3159. The jobs report published on Friday from the world’s largest economy showed employers added more jobs than expected as the jobless rate fell to its lowest level since December 2008 at 7.5 per cent from 7.6 per cent. Change in non-farm payrolls rose to 165,000 in April from the previous 88,000 versus consensus for 140,000.

Risk sentiment did not succumb to the same range bound trading as the EUR/USD, but remained supported strongly since Friday afternoon. World shares traded close to their highest levels in five years at the start of the week, and Wall Street closed at record highs as risk appetite was fuelled by optimism on the health of the global economy. Riskier currencies were buoyed while safe-haven currencies such as the Japanese yen and the Swiss franc came under severe pressure.

EUR/JPY rose to 130.41 on Monday from last week’s low of 127.06 and USD/JPY jumped up to 99.45. EUR/CHF spiralled higher on Tuesday to 1.2337, within sight of a one-month high by 1.2349. USD/CHF also rose to 0.9437 by the time of writing.

The Swissie was on the defensive on Tuesday, after German factory orders data came out much better than expected, suggesting Europe’s largest economy started to grow again and pushed riskier assets higher weighing on ‘refuge’ currencies.

The Aussie dollar was also hard hit at the start of the week after the Reserve Bank of Australia unexpectedly cut its benchmark interest rate to 2.75 per cent. In a statement following the Central Bank’s decision, Governor Glenn Stevens said policymakers “judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy.” He also said that “recent data on prices confirm that inflation is consistent with the target and, if anything, a little lower than expected.” AUD/USD fell to its lowest since March 4 by 1.0155. A break of this critical support by the 2013 low at 1.0115 would put the parity level in focus.

The British pound consolidated above the 1.55 level, edging further away from a multi-year low of 1.4831 hit on March 12. Cable was under pressure for most part of the first quarter of the year but found some support as recent data pointed at Britain averting a triple-dip recession as was previously feared. Sterling has also been well supported against the euro. EUR/GBP is trading near a three-month low, close to critical support around the 0.84 levels. A break below this level could give scope for downside acceleration towards 0.8270.

Upcoming FX key events
Today: UK BoE Interest rate decision and asset purchases target, US weekly jobless claims.
Tomorrow: G7 FinMin & Central Bank Chiefs Summit & Canadian net change in employment.

Technical key points
EUR/USD is neutral.
EUR/GBP is neutral.
USD/JPY is bullish, target 101.50, key reversal point 90.50.
GBP/USD is neutral.
USD/CHF is neutral.
AUD/USD is neutral.
NZD/USD is neutral.

trading@rtfx.com

RTFX Ltd is licensed to conduct investment services business by the Malta Financial Services Authority. This information does not constitute an offer or solicitation and is provided for information purposes only. This information shall not be deemed to constitute advice and should not be relied on as such to enter into a transaction or for any investment decision. Any opinions expressed in this document represent the views of RTFX at the time of preparation. They are subject to change without notice. RTFX believes that the information contained herein is accurate as at the date of publication. No warranty of accuracy is given by RTFX and no liability in respect of any errors or omissions, including any third party liability, are accepted by RTFX or any director, officer or employee.

Emman Xuereb is a trader at RTFX Ltd.

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