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  • Writer's pictureMike Paterson

Euro feels the love after ECB

Friday 4 February 2022

The BOE hiked rates by 0.25% to 0.5% as expected and triggered Quantative Tightening as I explained yesterday and the 5-4 voting duly pointed to further hikes albeit with cautious tones but it was the ECB who disappointed the doves the most at the press conference by finally acknowledging that inflation could be a problem.

I warned in my update yesterday that ECB risk was to the upside as hawkish tones were the least expected/factored in and so it proved as Lagarde pointed to rate hikes as early as July. Cue a Euro rally across the board, outpacing any positive impact of the BOE rate hike and once again proving that traders should take nothing for granted.

Risk sentiment remains underpinned as markets now wait on US NFPs today and looking for clues to the Fed's next move. FX ranges have livened up with the Euro rally impacting on other pairs too.

As ever, a case of not over-analysing or second-guessing but keeping your focus on price action in core and cross-pairs and identify ranges and what levels present value for money. Patience invariably a virtue but don't confuse patience with being stubborn either in entry or exit. I will repeat that he who hesitates is often lost in these trading conditions.

GBPUSD: Support now at 1.3550-60 after a failure at 1.3630 in the post-BOE rally. Re-sells duly placed and some pips banked in the retreat with the pair's cap helped by the EURGBP rally. I remain a rally seller overall and ever poised while respecting dip demand and keeping an eye on EURGBP and GBPJPY as always. EURGBP: Initial dip to, and hold of, 0.8285 on the BOE announcement, (GBPEUR up to 1.2070), then walked around the room a bit before taking off on the ECB rhetoric and now testing 0.8450 resistance (GBPEUR support 1.1800) this morning. GBPJPY: Support now at 155.50 and testing 156.50 this time as core pairs find dip demand amid steady risk tones.

EURUSD: 1.1280 support held and then a straight line rally up to 1.1400 on ECB hawkish tones before then another burst to test 1.1450-70. I expect dip demand into 1.1400-20.USDJPY: Found support around 114.50 amid that dip demand and JPY supply I highlighted again duly kicking in but failure above 115.00 and some re-sells placed. EURJPY: Up up and away from 129.50 to 131.50 then a further burst to look at 132.00 but a step too far at the moment. Dip demand expected at 131.50 initially then larger into 131.00-20. USDCHF: 0.9180 support line still intact with SNB ever vigilant but letting the ECB do its work for them yesterday as EURCHF soared. Rally sellers still poised amid generally softer USD tones. EURCHF: Straight line rally from 1.0400 to 1.0530 on the ECB tones and now testing 1.0560. SNB can rest even easier for the moment.

AUDUSD: Failure this time at 0.716 0and then 0.7140 again as the latest rally runs out of steam but still got aupport 0.7100-20 amid the softer USD tones, AUDJPY demand but commodity currency love fading at the moment.

USDCAD: 1.2660-80 now providing support but rallies limited to 1.2715 so far as oil remains underpinned and with CADJPY demand still on the firmer risk tones.

Offers: 1.2720, 1.2750, 1.2775-80, 1.2800, 1.2830, 1.2860

Let's continue to be careful out there in all things. Staying safe must be our main priority still.

Interbank rates: 08.38 GMT

GBPUSD 1.3570

EURUSD 1.1457

EURGBP 0.8442

GBPEUR 1.1843

GBPJPY 156.14

USDJPY 115.05

EURJPY 131.82

EURCHF 1.0554

AUDUSD 0.7108

USDCAD 1.2712

USDCHF 0.9213

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