FOREX TECHNICAL ANALYSIS: REVEALING THE REAL IMPACT OF THE ECB NEGATIVE RATE POLICY
EUR/USDForex Technical Analysis: Last week we witnessed a major development: the ECB introduced for the first time a negative deposit rate of -0.10% (banks that keep their money with the ECB will have to pay a fee) in an attempt to stimulate the banks to lend more money. The interest rate was also cut to 0.15% but these two actions had a mixed impact on the market.
Technical OutlookThe initial impact of ECBs actions was bearish and price traveled fast to 1.3500 but within a few hours, all Euro losses were erased and the pair climbed back. From a strictly technical perspective, the support at 1.3585 is holding and a move higher is in order, but considering the unprecedented ECB decision, a move into 1.3480 becomes a distinct possibility. For the time being, increased caution is recommended until 1.3680 or 1.3585 is broken.
Fundamental OutlookMonday French and German banks will be closed, celebrating Whit Monday and no major US data comes out so we are likely to experience a slow day, characterized by irregular volatility. The French Industrial Production numbers are released Tuesday morning while Wednesday will be another day without special announcements from either Europe or the United States. Thursday the ECB Monthly Bulletin is made public, showing the data which was taken into consideration when the rate decision was made and revealing the Banks outlook on future economic conditions. The same day the US Retail Sales numbers come out, potentially having a high impact on the US Dollar as they represent a major part of the entire US economy.
Friday the United States will release the Producer Price Index and the Consumer Sentiment. The former has inflationary implications as a higher price charged by producers will be eventually passed on to the consumer, while the latter is a leading indicator of consumer spending because a consumer who is confident about economic conditions is likely to spend more.
GBP/USDThe Bank of England decided to maintain the interest rate at 0.50%, a fact which didnt come as a surprise and which didnt create a lot of movement but overall we had a bullish week.
Technical OutlookAt the moment the pair is re-testing from below the uptrend line which was previously broken. This is the first area of resistance and also a place where downwards movement can resume. We can also notice a downtrend line which creates a confluence zone of resistance and increases the chance of a bearish move this week. A bounce lower will encounter support at 1.6750, followed by the important zone at 1.6600.
Fundamental OutlookTuesday the British Manufacturing Production comes out, tracking changes in the output produced by manufacturers and acting as a leading indicator of economic health; the same day an estimate of UKs Gross Domestic Product is released, potentially affecting the Pound as the GDP is the main gauge of overall economic performance.
The other major British event of the week is the release Wednesday of the Claimant Count Change, an indicator which shows the change in the number of unemployed people who claim social help. A higher number is considered bearish for the Pound as it suggests a contracting economy. As always, the US events will have a direct impact on the pairs direction.
This post has been edited by GDMFX: Jun 9 2014, 01:59 PM
