The EUR has moved higher overnight as traders and economists sentiment towards the possibility of an ECB rate cut are not as strong as they were a few days ago. In fact, in a poll conducted by Reuters, the vote was almost unanimous, 67 out of 73 polled, that the ECB will make no change in their interest rate policy at their meeting this coming Thursday.
Originally it was thought the ECB would begin the new year with a rate cut after comments were made by ECB President Draghi at his press conference following the December ECB meeting.
It is still expected that a rate cut by the ECB will occur by the June meeting, but the timing of such a cut will depend upon the economic progress of the core countries of the Euro zone. As German and Euro zone CPI numbers were higher than their expectations in December, this gives the ECB a little “wiggle room”, as to when the rate cut should take place.
Aiding the EUR rise, was a report from the Bipartisan Policy Center, that basically stated the US government will be out of cash soon, possibly as early as February 15. While the USD gained strength after the resolution of the fiscal cliff, the debt ceiling problem is proving to be just as, if not much more serious. At that time, according to the report, the US government will have “exhausted” its borrowing ability. This will become the next topic of negotiations between the Republicans and Democrats concerning spending cuts and the debt ceiling. This debate is expected to be just as contentious as the fiscal cliff debates, if not more.
In other currencies, the USD/JPY continued under pressure overnight failing to regain the 88.00 level. As the USD/JPY was “overbought” on all technical charts, this retracement is not unexpected. However, the fact that the currency pair broke through the 87.35 support area overnight did give traders the thought that further downside moves were possible. To this point, support at 87.25 has held, but a break their targets the 87.00 level. Given the current political tone in Japan and the continued expectation of a weaker JPY moving forward, these levels could be looked upon as good opportunities to purchase USD/JPY.
USD/CAD had a quiet overnight trading range after falling below the .9900 level during trade yesterday. Support here is seen at .9840. A break there should target the .9825 area. There is good selling interest above the .9880 resistance area, so expect the USD/CAD to remain within its overnight trading range.
The EUR looks comfortable at the moment with its 1.31 handle and I’d expect a test of the overnight high of 1.3140 as the North American trading day begins. There are still some short EUR positions out there that could be “squeezed” out on a break of 1.3160.
Further reading: Forex Analysis: EUR/USD Pauses Bearish Correction Around Key Support
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