The ECB statement is coming up soon!
If you’re expecting volatility for EUR pairs, do check out this trend setup on EUR/JPY.
Before moving on, ICYMI, yesterday’s watchlist checked out NZD/CAD’s double bottom pattern ahead of the BOC decision. Be sure to check out if it’s still a good play!
And now for the headlines that rocked the markets in the last trading sessions:
Fresh Market Headlines & Economic Data:
BOC kept rates on hold at 5.00% as expected, citing that “future policy is shifting from whether monetary policy is restrictive enough to how long to maintain the current restrictive stance.”
BOC adjusted growth and inflation forecasts, projects CPI to ease to 2.5% by the end of 2024 and expects flat GDP outlook for Q1 2024
US flash manufacturing PMI up from 47.9 to 50.3 vs. 47.6 estimate, flash services PMI up from 51.4 to 52.9 vs. 51.4 estimate
During BOC press conference, Governor Macklem said that risk of another rate hike is not zero, need more progress on inflation before discussing rate cuts
EIA crude oil inventories showed reduction of 9.2 million barrels in stockpiles versus estimated drop of 1.2 million barrels
Price Action News
The Loonie was a big mover during the BOC decision and presser, as the central bank kept policy unchanged as expected but removed language on the possibility of rate hikes.
As a result, the reaction was overall bearish, as traders took this as a sign of a cautious pivot. Even though BOC head Macklem said that the possibility of rate hikes is not zero, the downgrades on growth and inflation forecasts suggested that policymakers aren’t exactly feeling optimistic.
With that, the Loonie chalked up its largest losses against CHF (strongest performer for the day) before pulling slightly higher on a risk-on lean during today’s Asian session.
Upcoming Potential Catalysts on the Economic Calendar:
ECB monetary policy statement at 1:15 pm GMT
U.S. advance GDP release at 1:30 pm GMT
U.S. advance GDP price index at 1:30 pm GMT
U.S. core durable goods orders at 1:30 pm GMT
ECB press conference at 1:45 pm GMT
U.S. new home sales at 3:00 pm GMT
Tokyo core CPI at 11:30 pm GMT
BOJ meeting minutes at 11:50 pm GMT
Use our new Currency Heat Map to quickly see a visual overview of the forex market’s price action! ️
The market focus now shifts to the ECB monetary policy statement, as the central bank is widely expected to keep policy unchanged and refrain from giving forward guidance.
As discussed in our January ECB decision Event Guide, policymakers have already downplayed the possibility of seeing rate cuts anytime soon. To add to that, sentiment indices and manufacturing PMI figures point to a rebound in economic activity.
Could this be enough to trigger a downtrend reversal for EUR/JPY?
The pair is inching closer to testing its short-term descending trend line resistance that happens to line up with the 50% Fib and 161.00 major psychological mark.
A break above this strong area of interest might confirm that euro bulls are at it again, possibly taking the pair up to the bullish targets at R1 (161.63) or higher.
Don’t forget that the yen has been on weak footing recently, following reports of weak wage inflation and spending activity. Still, the safe-haven currency managed to pocket some gains after the BOJ decision when Ueda expressed confidence about hitting inflation targets.
With that, the Tokyo core CPI and BOJ meeting minutes due in the next Asian trading session might then determine whether or not EUR/JPY’s post-ECB moves might be sustained.
Just make sure you adjust your positions accordingly and practice proper risk management when trading this one!