The ECB remained on hold as was widely expected at 0.0% and the common currency had little reaction to the release. In the accompanying statement no reference was made to the recently announced TLTROs, rates are expected to remain at present levels throughout 2019 and QE debt to be reinvested for an extended period. Analysts point out that the ECB is expected to remain on hold for a long time, after the recent significant slowdown. In his press conference ECB President Mario Draghi, stressed the risks facing the Eurozone, also mentioning the risks from trade disputes after recent threats made from US president Trump to impose tariffs of European products. The ECB president avoided to comment on tiered negative rates, as it would require further analysis. We expect the EUR to remain data driven, but also sensitive to any further trade frictions with the US in the near term. EUR/USD managed to maintain a sideways movement above the 1.1260 (S1) support line, despite there being some volatility during Mario Draghi’s press conference. The pair could continue to trade in range bound movement today, yet may prove sensitive to the US financial releases as well as any statements of Fed officials later during the day. Should the market favour the pair’s long positions, we could see it breaking the 1.1300 (R1) resistance line, while if it comes under the selling interest of the market, we could see it breaking below the 1.1260 (S1) support level.
New Brexit extension until the end of October, granted to the UK.
The EU postponed any hard Brexit risks, by granting to the UK an extension of the Brexit date until the end of October. The decision as such, was not able to show a way forward for the resolution of the issue and ended providing little support for the GBP. Progress made will be reviewed probably in June and the UK may be required to take part in the UK Parliament elections, which are to be held in May (if no solution has been found until then). Looking at the big picture we would like to stress that the risk of a hard Brexit is only temporarily removed and all options remain on the table, while at the same time the UK was able to buy some breathing time. The overall plan is expected to cause an uproar back in London, as Tory hard Brexiteers seem to be getting impatient with May’s leadership and we could see them building up pressure by trying to over through her or discredit her. Also we would place considerable weight on the negotiations between the UK government and the opposing Labour party regarding Brexit. The fact that these two political processes run at parallel lines creates considerable confusion for the inner political stage of the UK. If we see the inner UK political stage destabilizing somewhat in the near term, we could see the GBP losing ground, while if the negotiations with the labour party start creating positive headlines, we could see the GBP getting some support. Cable maintained a sideways movement yesterday, above the 1.3070 (S1) support line. Please note that we could see the pair still being sensitive to any Brexit headlines, in the aftermath of the emergency Brexit summit. Should the bulls dictate the pair’s direction, we could see the pair breaking the 1.3175 (R1) resistance line, while if the bears take over, we could see the pair breaking the 1.3070 (S1) support line and aim for the 1.2970 (S2) support level.
Other economic highlights, today and early tomorrow
In today’s European session, we get Germany’s and France’s final HICP rates for March as well as Sweden’s CPI rate for the same period. In the American session we get the US PPI rates for March and a number of speakers from the Fed along with BoC’s Wilkins. Please note the release of RBA’s financial stability review tomorrow during the Asian session.
GBP/USD H4
Support: 1.3070 (S1), 1.2970 (S2), 1.2875 (S3)
Resistance: 1.3175 (R1), 1.3265 (R2), 1.3350 (R3)
EUR/USD H4
Support: 1.1260 (S1), 1.1220 (S2), 1.1175 (S3)
Resistance: 1.1300 (R1), 1.1340 (R2), 1.1380 (R3)
