Things got busy towards the end of last week. The outcome of the ECB policy meeting on Thursday proved to be a significant trigger, but it was not the only market mover.

Much of the pre-ECB speculation was let down as the ECB in the end engaged in no additional easing measures. Most importantly Draghi managed to reassure the euro bulls that inflation would pick up gradually and he played down the currency strength saying that it was only having a marginal impact on imported inflation.

The EUR/USD rose over 100 pips after opening at 1.3733 on Thursday as it reacted to Draghi’s press conference. Support continued to flow for the euro, and it rose to fresh two-year highs against the US dollar on Friday, as it hit highs of 1.3915.

The continued up move for the EUR/USD held even after the release of stronger-than-expected NFP data. In reality looking at the intraday moves of the EUR/USD, you would note that the initial move immediately after the data was lower, as investors reflected the stronger data. However, losses for the euro soon levelled out and in the end the currency pair closed higher when compared to session open that day. The fresh highs made were hit prior to the release of the NFP data last Friday.

The health of the US labour market surprised positively, as news hit the wires that in February the US economy created 175k jobs, a strong rise from the previous month’s 129k and well above the expected 149k indicated by consensus figures.

Early into the Asian session, at week start, more high impact data continued to leave its effect on market sentiment. Over the weekend China had reported a significant drop in Y/Y exports up till February. Exports dropped by -18.1 per cent swinging from a previous +10.6 per cent and widely disappointing expectations of +7.5 per cent. As a result the trade balance for the same period registered a significant deficit.

Japanese data early into Monday’s session also contributed to the investor’s generic risk off mode. Japanese annualised GDP for the fourth quarter slipped to 0.7 per cent from a previously stated one per cent. The Japanese yen lost 1.5 per cent to the US dollar throughout last week’s trading, with the USD/JPY pushing to weekly highs of 103.75. At the time of writing the currency pair has mostly maintained 103 levels and is currently trading around 103.25.

Overall against a basket of currencies, and according to the Bloomberg Correlation-Weighted Currency Index (BCWI) the Japanese yen was down -1.69 per cent in the former part of the week, despite the temporary strengthening as the week started. So far, according to the same index, the Japanese yen has shed around 1.80 per cent for the current month.

Early in Tuesday’s session the BoJ also published its monetary policy statement. The Japanese central bank left its easing policy unchanged and reiterated its view on the economic outlook.

According to the BCWI, the British pound lost some of its support in the former part of the current week but preserved the gains seen since the start of March. The GBP marked the lowest levels for March so far against both, the USD and the euro.

Overall the GBP has been enjoying a winning streak topping the largest gains amongst the major currencies throughout these last 12 months – gaining over 12 per cent. The GBP is expected to continue to attract support amid speculation that the Bank of England will increase interest rates sooner than expected.

After that the GBP/USD hit February highs at 1.6822 (levels we had only last seen towards the end of 2009), the currency pair eased lower but nevertheless was supported around 1.66 levels. At the time of writing the price is at 1.6630. The story was very much similar when seen against the single currency as well. After hitting one-year lows at 0.8157 we saw price action bounce higher towards 0.8350. At the time of writing the currency pair is trading at 0.8336.

On Tuesday the BoE chief, Mark Carney, was testifying in front of UK lawmakers with regards to the allegations of the FX market manipulations. There is currently an internal probe trying to determine whether officials were involved in the manipulation of foreign-exchange markets. These investigations are not new and have been ongoing since last year and have in fact involved a number of global banks.

Upcoming FX key events:
Today: US Advance retail sales & business inventories.
Tomorrow: German CPI; University of Michigan consumer sentiment.

Technical key points:
EUR/USD is bullish, target 1.40, key reversal point 1.3550. EUR/GBP is bearish, target 0.8050, key reversal point 0.8470. USD/JPY is neutral. GBP/USD is bullish, target 1.6900, key reversal point 1.6250. USD/CHF is neutral. AUD/USD is neutral. NZD/USD is neutral.

Please feel free to send any comments or feedback regarding our articles on trading@rtfx.com.

Visit RTFX for additional forex news and demo trading account information.

RTFX Ltd is licensed to conduct investment services business by the MFSA. This information does not constitute advice, should not be relied on as such to enter into a transaction or for any investment decision and is provided for information purposes only.

www.rtfx.com

Rudolf Muscat is a senior trader at RTFX Ltd.

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.