Over to super Mario ahead of ECB and BoE annoucements today

The US dollar consolidates ahead of the ECB meeting today following Tuesday’s decline in the dollar as both the euro and cable respect physiological levels at 1.40 and 1.70. The Asian session saw a continuation of the risk rally from the US markets. AUD was the standout beneficiary in the FX space following solid employment data from Australia that showed an increase in jobs of 14.2k versus the 8.2k expected as the unemployment rate dropped to 5.8% versus the 5.9% expected. Chinese trade balance also supported the lifestyle currency, rising to a three-month high of $18.46 billion and exports rising to 0.9% versus -3% that was the consensus forecast.

Federal Reserve Chair lady Janet Yellen has been deemed slightly more dovish than the market expected at the JEC yesterday. Emphasis was on the weak housing market and inflation continuing to run below the FOMC’s long term objective. The general tone reiterated the ‘lower for longer’ message on rates and she remained committed that monetary accommodation was still needed to restore the labour market and inflation outlook as outlined by the Fed’s dual mandate.

Today we have the BoE and ECB meetings, with the former likely to be a non-event ahead of the inflation report next week. The ECB and deflation risk is likely to be the main focus of the week as the market consensus indicates that policy is likely to remain unchanged following improved PMI data earlier in the week and the latest HICP not at the ECB danger level. I believe at the very most we could see a policy measure in the form of sterilisation on SMPs being removed, with the market looking for dovish tones and vigilance comments from the ECB press conference with the euro naturally sensitive to any comment on its recent strength towards 1.40.

EUR/USD

Supports 1.3890-1.3850-1.3810 | Resistance 1.4000-1.4030-1.4070

USD/JPY

Supports 101.30-101.05-100.75 | Resistance 102.00-102.30-102.50

GBP/USD

Supports 1.6940-1.6910-1.6830 | Resistance 1.7000-1.7045-1.7120