Dovish ECB commentary are keeping the shared currency’s gains in check, but will BOE head Bailey’s upcoming speech drag the pound down, too?
Take a look at this potential trend continuation on EUR/GBP.
Before moving on, ICYMI, yesterday’s watchlist checked out AUD/JPY testing an area of interest ahead of the Australian CPI report. 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:
U.S. NFIB Small Business index up from 90.6 to 91.9 vs. estimated uptick to 90.7 in December, as business optimism improved
Canadian building permits slumped 3.9% month-over-month in November versus estimated 1.5% slide and earlier 3.0% gain
Confusion over bitcoin ETF approval by SEC weighs on crypto markets, as agency says its social media account was compromised
ECB policymaker Centeno talks of potentially earlier than expected interest rate cuts than May, as there are no signs of additional pressure on inflation
API crude oil inventories showed larger draw of 5.215 million barrels vs. estimated dip of 0.7 million barrels
Japanese average cash earnings up 0.2% year-over-year in November vs. estimated 1.5% gain, weighing on BOJ’s goal of seeing stronger wage pressures
Commodity prices rebounded 2.4% year-over-year in New Zealand for November, following earlier 1.2% slump
Australian CPI up 4.3% year-over-year in November vs. estimated 4.4% figure and earlier 4.9% gain
Price Action News
Overlay of JPY vs. Major Currencies Chart by TradingView
The Japanese yen was already under downside pressure in the previous day, thanks to a return in risk-on flows in the financial markets.
After a bit of consolidation in the latter sessions, the lower-yielding currency opened on weak footing once more upon seeing the latest average cash earnings report.
As it turned out, wage growth was nearly nowhere to be seen, as the figure clocked in a meager 0.2% yearly uptick instead maintaining its previous 1.5% increase. This dampened expectations of the BOJ exiting its negative interest rates era anytime soon since the BOJ is waiting for more evidence of higher wages.
With that, JPY is in the red against its peers, most notably against higher-yielding commodity currencies like the Aussie and Kiwi.
Upcoming Potential Catalysts on the Economic Calendar:
BOE Governor Bailey’s speech at 2:15 pm GMT
FOMC member Williams’ speech at 8:15 pm GMT
Use our new Currency Heat Map to quickly see a visual overview of the forex market’s price action! ️
EUR/GBP: 15-min
EUR/GBP 15-min Forex Chart by TradingView
The euro has been keeping its head above water, despite downbeat remarks from ECB policymaker Centeno who said that they shouldn’t wait until May to cut interest rates.
He noted that there has been no evidence of stronger inflationary pressures lately, which means that the central bank might need to act sooner rather than later.However, euro bears don’t seem to be buying this narrative just yet and might be waiting for more confirmation from data or other ECB officials.
Meanwhile, the pound might see some fresh volatility during BOE head Bailey’s speech. In his latest testimony last December, he mentioned that they may be seeing a peak in their rate cycle, suggesting scope for easing or at least sitting on their hands.
Now the latest U.K. CPI figures have fallen short of market estimates, so Bailey might lean towards a less optimistic stance. If that’s the case, EUR/GBP could pop above current resistance zones and aim for a reversal of the slide.
A move above the 61.8% Fib could lead to a test of R1 (.8610) and possibly a rally to R2 (.8620) near the swing high then R3 (.8640) if euro bulls keep charging.
On the other hand, if the falling trend line is enough to keep gains in check, EUR/GBP might slump back to nearby downside targets at the pivot point level (.8600) then S1 (.8590) near the swing low.
