ECB hikes rates while BoJ remains on hold

The USD lost ground across the board yesterday against its counterparts allowing for gold’s price to rise, while US stock markets were clearly in the greens implying a more risk on market sentiment. The EUR is about to end the week stronger against the USD, JPY and GBP in a sign of a broader strength for the common currency. On a monetary level, ECB’s interest rate decision tended to provide additional support for the EUR, as the bank hiked rates as expected by 25 basis points and also signaled that more rate hikes lay ahead. It’s characteristic that ECB President Christine Lagarde in her press conference that followed the release of the decision, reaffirmed that the bank is not at the end of its rate hiking cycle with another 25 basis points rate hike in the July meeting being probable. This was also the market’s expectation and EUR traders seem not to have been disappointed. EUR/USD rose yesterday and broke the 1.0855 (S1) resistance line, now turned to support. We tend to maintain our bullish outlook for the pair as the slope of the pair’s movement indicative of the upward trendline has steepened. Furthermore we highlight the RSI indicator which has risen above the reading of 70, indicative of the strong bullish sentiment of the market yet at the same time the RSI indicator may imply that the pair has reached overbought levels and may be ripe for a correction lower.  Similar signals come from the Bollinger bands, as the pair broke the upper boundary in its upward movement before stabilizing somewhat in today’s Asian session. Should the bulls maintain control over the pair we may see it breaking the 1.1000 (R1) resistance line and set as the bulls’ next possible target the 1.1175 (R2) resistance level. Should on the other hand the pair correct lower and the bears find a chance to take over, we may see EUR/USD correcting lower breaking the prementioned upward trendline in a first sign that the upward movement has been interrupted, break the 1.0855 (S1) support line and aim for the 1.0695 (S2) level.     

We should note also on a monetary level, that BoJ remained on hold at -0.10% as was widely expected, keeping its ultra-loose monetary policy settings in place. The bank’s dovish stance was characteristic in its forward guidance included in the accompanying statement. Overall, the monetary policy outlook differentials that BoJ has with other central banks tend to widen and thus weigh on JPY and we expect that tendency to be maintained as long as the bank keeps its dovish stance and others tighten their policy. Given the bank’s efforts to maintain inflation near the 2% target, we highlight on a macroeconomic level the release of the June CPI rates near the end of next week, especially as the bank expects inflation to fall later this year. As these lines are written BoJ Governor Ueda still has to hold a press conference for the interest rate decision and may extend volatility for JPY pairs. Furthermore we note for JPY traders the statements made by Japan’s Finance Minister Suzuki, that excessive volatility is undesirable, allowing for a hint that the Japanese government may intervene in the markets once again, should JPY weaken considerably.

USD/JPY edged lower breaking the 140.80 (R1) support line, now turned to resistance. We tend to maintain a bias for a sideways motion currently yet note also that there are some bullish tendencies present. Should the pair find extensive buying orders along its path, we may see the USD/JPY breaking once again the 140.80 (R1) resistance line and aim for the 142.75 (R2) resistance level. Should a selling interest be expressed by the market for the pair, we may see USD/JPY reversing course and breaking the 138.70 (S1) support line clearly.

Other highlights for the day:

Today we note the release of Eurozone’s final HICP rate for May, Canada’s wholesale trade for April and the preliminary US University of Michigan consumer sentiment for June. On the monetary front, we note the speeches of St. Louis Fed President Bullard, Fed Board Governor Waller, Richmond Fed President Barkin and ECB President Lagarde. 

EUR/USD H4 Chart

Support: 1.0855 (S1), 1.0695 (S2), 1.0525 (S3)

Resistance: 1.1000 (R1), 1.1175 (R2), 1.1370 (R3)

USD/JPY H4 Chart

Support: 138.70 (S1), 136.60 (S2), 134.60 (S3)

Resistance: 140.80 (R1), 142.75 (R2), 145.10 (R3)

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