Wednesday, February 2nd, Market Overview

Awaiting for the NFP and ISM Announcements

In the US, all eyes will be on the Nonfarm Payrolls for the month of January, released on the first Friday following the reported month. This report is considered as the most important indicator for forex traders. The change in the number of positions is correlated with the performance of the economy, this performance is monitored by the policymakers. A reading below 155k will be considered as bearish for the USD; however, a reading above this estimated number will be considered as bullish for the USD. Another report that will have an impact on the market is the ISM Services PMI due for release on Thursday. It reveals the current conditions in the US service sector, which has historically been a large GDP contributor. A reading below 58.7 will be considered as bearish for the USD; however, a reading above the estimated number will be positive for the USD.

Hawkish vs Dovish in the Euro-Zone

In the Euro-zone, all eyes will be on the Consumer Price Index, which will be released on Wednesday. It captures the changes in the price of goods and services and is a significant way to measure changes in purchasing trends and inflation in the Euro-Zone. A reading below 4.3% will be considered as bearish for the euro; however, a reading above the estimated number will be considered as bullish for the euro. On Thursday, the ECB Deposit Rate Decision and the ECB Interest Rate Decision will be announced. The deposit rate, announced by the European Central Bank, is the interest rate paid on the surplus liquidity that credit institutions may deposit overnight in an account with a national central bank that is part of the Euro system. If the interest rate decision rises and ECB is hawkish about the inflationary outlook, then it is positive for the euro. Likewise, a cut on the interest rate and a dovish view will be bearish for the euro.

Bank of England Announcement

In England, despite the Brexit calm, the Bank of England may drop its hawkish bias. The BoE Asset Purchase Facility and BoE interest rate Decision reports will determine market movement. These two reports will be announced on Thursday. The first one is a way to influence long term interest rates, the BoE plans to inject money into the economy throughout the market bond purchases. Second, if BoE raises the interest rate above 0.5% and has a hawkish outlook about inflation, it will be positive for the Pound; however, a dovish view and a cut below 0.5% will be considered bearish for the Pound.

GBPUSD:

From a technical perspective, this pair shot to a four-day high, around the 1.3480-1.3485 mark. A break above the psychological mark around the 1.3500 level, will test the next relevant hurdle near the 1.3525 level. However, on the flip side, a break below the 1.3430 area will initiate the bearish movement and direct this pair to the round figure mark at 1.3400, which will shift the bias back in favor for bearish traders. The next support level will be around 1.3355 area. A break below this level could further extend the downward trajectory towards the 1.3320 region at first, following the last support level at the 1.3300 mark.

EURUSD:

Overnight, this pair added some strong gains, marked the biggest single rise ever since mid-November, and aimed higher for the second straight day on Tuesday. A further push for the pair will influence the price to reach the 1.1300 mark. A break above this level will lead it to move to the next resistance near the mid-1.1300s. On the flip side, a break below 1.1220 will direct the pair to the 1.1200 mark. Failure to defend the mentioned support levels will set the stage for the resumption of the recent bearish trajectory witnessed over the past two weeks, the next support level will be at 1.1150, a break below this level will make the pair seems vulnerable to retest the 1.1121 area and drop to the 1.1100 mark.

EURGBP:

Regarding Monday’s strength of the pair, it may slide below the 0.8300 if the Bank of England hikes its rates on Thursday. The ECB announcement is not expected to yield any policy/policy guidance changes, which will likely not be too much of a market mover. However, the BoE is, expected to execute a rate hike (to 0.5%) and kick off quantitative tightening by ending balance sheet reinvestment. Thus, the same cannot be said for Sterling, which will likely be most sensitive to guidance on the future of the rate path for this pair.

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Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.

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