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Countdown to ECB meeting

The European Central Bank (ECB) policy meeting, statement and press conference is today.  FX traders may be reluctant to get very involved ahead of the meeting results which suggests another narrow range trading session ahead. 

US March Durable Goods Orders data are due at the same time as Mr Draghi’s press conference.  The forecast is for a gain of 1.6%, ex-transportation 0.8%.  A higher than expected result will support the greenback.

Source: Federal Reserve Bank of St. Louis

However, US dollar bulls appear to be gaining the upper hand.  The US dollar index (USDX) broke above multi-top resistance in the 90.80 area which was also the 38.2% Fibonacci retracement level of the December-February range.  The break targets the 50% retracement level of 91.60.  The intraday uptrend from April 19 is in place above the 90.75 level and supports additional EURUSD losses.

The ECB is widely expected to leave policy unchanged.  Also, they are not expected to offer any clarity as to the end of quantitative easing.  Eurozone economic reports have not given any incentive for the ECB to shift their guidance.  Mr Draghi may express concern about uncertainty around trade and inflation.

If so EURUSD will continue to move lower with a break of support at 1.2155 leading to 1.2040.

On the other hand, if Mr Draghi provides any suggestion as to the timing of policy normalization, EURUSD will rally.

Chart: EURUSD

Source: Mocaz Charts

AUDUSD is under pressure due to widening Australia/US interest rate differentials.  The Reserve Bank of Australia is thought to be on hold until early 2019 while the Fed has at least two more rate hikes coming down the pipe.  AUDUSD has been sliding steadily since breaking support at 0.7730 and again at 0.7650.   A move below 0.7540 targets 0.7480.

Chart: AUDUSD

Mocaz Chart:

Sterling has mirrored EURUSD moves.  Overbought speculative positioning continues to weigh on GBPUSD   Rising US interest rates in the face of last week’s dovish Mark Carney comments have fueled selling.  The GBPUSD downtrend is intact below 1.4000 with a move through support at 1.3910 opening the door to a quick drop to 1.3830.

The Bank of Canada (BoC)reiterated its cautious stance on interest rates for the second time this week.  BoC Governor Stephen Poloz addressed the Senate Committee on Banking a few hours ago.  He said he expected an economic rebound in Q2 and that inflation was being boosted by temporary factors.  He warned  that the biggest risk to his outlook was “the prospect of a large shift toward protectionist trade polices around the globe.”

Bank of Canada rate hikes will lag those of the Fed and widening CAD/US interest rate differentials will limit USDCAD downside.

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