The Forex Trading Week Ahead

Focus: CURRENCIES

Eric Viloria Image Eric Viloria Senior Currency Strategist, FOREX.com

Senior Currency Strategist Eric Viloria of Forex.com outlines the issues and events of interest to currency traders in the coming week.

Changing ECB Expectations Support EUR

The European Central Bank (ECB) kept interest rates on hold at 0.75% as expected on Thursday after talks at the prior meeting that indicated a rate cut could be expected soon. More surprisingly, at the ECB press conference, President Mario Draghi stated that the decision to keep rates steady was unanimous and that the region’s economy should recover gradually this year. This helped to lift the euro as speculation of lower interest rates were drastically reduced while the ECB seems content to stay on the sidelines for now.

Draghi noted that the Bank remains focused and committed to its goal of price stability despite record high unemployment levels and negative GDP growth. He highlighted improvements in financial indicators and said that the transmission mechanism is starting to be repaired amid a “reduction in financial fragmentation.” The Outright Monetary Transactions (OMT) is yet to be activated, but sovereign yields have fallen significantly since the program was announced. The Spanish 10-year yield fell below 5% this week after the country raised more than its maximum target in a debt sale. Government bond auctions in other peripheral nations were well received this week, reducing the urgency for countries such as Spain to seek a bailout.

Technically, EUR/USD rebounded significantly this week and broke above the 1.33 resistance level. The pair now faces key upside resistance ahead of the 1.34 figure.