EUR/USD Threatens 1.0600 Hurdle; Mixed CPI to Encourage Dovish ECB

2017-02-27 16:24:00

Talking Points:

- EUR/USD Threatens 1.0600 Hurdle; ECB to Endorse Dovish Outlook on Mixed Euro-Zone CPI.

- GBP/USD Holds Narrow Range Ahead of ‘Brexit’ Bill Review, U.K. Mortgage Applications.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
EUR/USD	1.0622	1.0624	1.0552	59	72

EUR/USD Daily

Chart - Created Using Trading View

EUR/USD may stage a larger rebound as it threatens the downward trending channel from earlier this month, with the Relative Strength Index (RSI) highlighting a similar dynamic; however, another failed attempt to close above the 1.0600 (23.6% expansion) handle may keep the near-term outlook tilted to the downside as the European Central Bank (ECB) is widely expected to endorse a dovish outlook at the next policy meeting on March 9..
Even though the Euro-Zone’s Consumer Price Index (CPI) is anticipated to show a pickup in the headline reading for inflation, the report is likely to have a limited impact on the monetary policy outlook as President Mario Draghi and Co. argue ‘headline inflation had increased recently, mainly owing to developments in energy prices;’ in turn, the Governing Council may increase its efforts to ward off a ‘taper tantrum’ and keep the door open to further extend its quantitative easing (QE) program as the central bank struggles to achieve its one and only mandate for price stability.
With Fed Fund Futures still pricing a greater than 60% probability for a June rate-hike, the diverging paths for monetary policy instills a bearish outlook for EUR/USD, but the Federal Open Market Committee (FOMC) may also retain the status quo at the March 15 interest rate decision as Chair Janet Yellen notes ‘inflation moved up over the past year, mainly because of the diminishing effects of the earlier declines in energy prices and import prices;’ nevertheless, the policy statement may reveal a rift within the committee as the U.S. economy approaches ‘full-employment,’ with Non-Farm Payrolls (NFP) currently projected to increase another 178K in February.
In turn, failure to close above the 1.0600 (23.6% expansion) handle may spur a move back towards near-term support around 1.0470 (38.2% retracement) to 1.0500 (50% expansion), with a break/close below the Fibonacci overlap curbing the risk for an inverse head-and-shoulders formation; next downside region of interest comes in around 1.0410 (61.8% expansion) to 1.0420 (100% expansion).

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
GBP/USD	1.2470	1.2491	1.2384	2	107

GBP/USD Daily

Chart - Created Using Trading View

GBP/USD sits at the lower bounds of its recent range amid fresh headlines warning of a second referendum in Scotland, but the lack of momentum to break/close below 1.2370 (50% expansion) may keep Cable with a narrow range especially as the House of Lords starts a detailed review of the ‘Brexit’ bill; will keep a close eye on the RSI as it approaches trendline support, with a break of the bullish formation raising the risk for a further decline in the exchange rate.
The bearish sentiment surrounding the British Pound may push the Bank of England (BoE) to switch gears as the central bank persistently warns ‘a consequence of weaker sterling is that the higher imported costs resulting from it will boost consumer prices and cause inflation to overshoot the 2% target,’ but the range-bound conditions in GBP/USD may keep Governor Mark Carney and Co. on the sidelines as the inflation forecast ‘is similar to the one expected in November, despite the stronger growth outlook.’
In turn, the U.K. Mortgage Approvals report may spark a limited market reaction, and the pound-dollar may show a more meaningful response to the slew of fresh Fed rhetoric with the group of 2017 voting-members (Dallas Fed President Robert Kaplan, Philadelphia Fed President Patrick Harker, Fed Governor Lael Brainard, Fed Governor Jerome Powell, Fed Vice-Chair Stanley Fischer and Chair Janet Yellen) scheduled to speak over the coming days.
Failure to break/close below 1.2370 (50% expansion) may spark a move back towards the upper bounds of the current range, with the pair largely capped by the Fibonacci overlap around 1.2630 (23.6% retracement) to 1.2680 (50% retracement).

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