• USD is higher head of ECB and BOE meetings.
• EUR is weaker as rates remain unchanged.
• Commodity currencies weak against the USD due to weak economic data in Canada and Australia.
USD – The dollar gained ground against the euro and sterling as traders start to take profit ahead of both the European Central Bank (ECB) and Bank of England (BOE) meetings tomorrow. The greenback may push higher ahead of the central bank meetings in Europe, however, the gains will remain short lived as analysts expect that the dollar will remain under pressure with a negative bias.
EUR – The euro fell on anticipation of Thursday’s ECB meeting coupled with political uncertainty in Spain and Italy. Analysts are concerned that the strength of the currency may be a popular topic. Look for the currency to remain lower bid ahead of tomorrow’s meeting. As expected rates will remain unchanged, but all eyes will be on ECB President Draghi comments. If Draghi focuses on the improvement in the Eurozone, while addressing future hurdles, look for the euro to hold on to its current gains and potentially push higher. Additionally, French president Holland became the most high profile political figure to date to speak out about the building dangers to the Eurozone economy from a strengthening euro. Holland stated the idea of adopting an exchange rate policy for the Eurozone so that it will not be subjected to an exchange rate that does not reflect the real state of the economy. However, given that the trade-weighted euro has only risen about 3.3% since their last meeting, market participants doubt the ECB will be overly concerned by the euro.
GBP – Sterling continued its downward trend against the dollar, but gained slightly against the euro over concern that the single currency is overvalued. The market is awaiting tomorrow’s central bank meeting and interest rate decision where new central bank chief Mark Carney will speak and may address the need for a more aggressive monetary policy taking a look at QE once again. Look for sterling to remain under pressure as the market is eying further policy direction from the recently appointed Carney, as well as, the possibility of a potential downgrade on the UK’s credit rating, denting its AAA status.
JPY – The dollar was little changed against the yen after touching 94.06 in the interbank market, its highest level since May, 2010, while the euro was lower against Japan’s currency.
Look for the yen to remain under pressure with expectations of further aggressive monetary easing. USD/JPY next test will be the key psychological level off 98.00
Commodity Currencies – The commodity currencies weakened against the dollar as economic data in Australia and Canada came in lower than expected. The AUD fell to its lowest level in two months against the dollar today as weak retail sales data aided in more interest rate cuts. The AUD traded below 1.0300 for the first time since November. Expect the AUD to remain bearish until the release of the Business Confidence and Conditions data due early next week. The CAD weakemed against the greenback as market sentiment turned cautious before the ECB meeting. Additionally, the Canadian unemployment data was revised in January showing a .10% uptick to 7.2% from 7.1%. Market participants expect the currency to stay within its recent ranges until the release of the Canadian full-time employment and housing starts due this Friday.
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