All eyes are focused on Europe this morning as traders await the central bank meetings of the Bank of England and European Central Bank.
Neither institution is expected to make any changes in policy and the BOE announcements at 7 am, will quite likely be ignored, as no changes in policy are expected there. That will allow traders to give their full attention to the ECB announcement 45 minutes later.
Although no one expects any changes in policy here either, the press conference that ECB President Draghi will hold at 8:30 am is where traders will look for clues as to future moves by the ECB. While minutes from the last meeting revealed that some members of the governing council favored a rate cut, such a move is not expected until later in the first quarter. The press conference will no doubt speak of how the central bank is monitoring the economic situation of the region and continues to maintain an accommodative stance, ever ready to adjust rates when the time is right.
The EUR had a peaceful overnight trading range testing support at 1.3040, as well as resistance at 1.3075. The single currency has had a tendency to rise right before the announcement in past months and it will be interesting to see if that trend continues later this morning.
The AUD was the big mover overnight taking advantage of better than expected news out of China. China’s trade surplus surprisingly rose to $31.6 billion in December. Expectations were only for an increase of $20.1 billion. This surprising event helped the AUD move higher. China is Australia’s main trading partner and any significant moves in their economy effects the AUD.
In other currency news, the USD/JPY once again tested the topside resistance at 88.30 before easing off as PM Abe asked the BOJ to double their inflation goal. BOJ governor Shirakawa stated yesterday that the central bank is working in close cooperation with the government. The next BOJ meeting is Jan. 21-22 and their is growing speculation the BOJ will add to their stimulus package.
The Canadian Dollar remained strong against the USD and moved higher against the EUR in anticipation that the ECB will show a bias towards lower interest rates moving forward. USD/CAD has tested support at the .9850 level and moved above the 1.2900 level against the EUR during overnight trading.
As I stated earlier, expect the EUR to rise slightly ahead of the ECB announcement, then we will all see what President Draghi has to say a few minutes later. I will be back with comments after both central bank announcements.
Further reading:Â Forex Analysis: GBP/USD Stalls Above Strong Support within Bullish Trend
