Euro strengthens mildly ahead of ECB monetary policy decision
The euro was little moved after tepid economic data from the region. In Sweden, the data showed that motor vehicle factory orders dropped sharply in February. The new orders declined by 12.7% from January to February. This drop was led by the export motor vehicle industry, which declined by 18%. Last week, data from Germany showed a drop of 4.2% in the manufacturing sector. Today, data from Germany showed that the trade surplus increased to 18.7 billion euros. This is despite the fact that exports and imports declined by -1.3% and -1.6%. The region is also seeing an increase in populism ahead of the European Union election. It is also undergoing uncertainties surrounding Brexit.
The sterling was little changed today as Theresa May prepared for a trip to Germany to persuade Angela Merkel for another extension on Brexit. This is because the country is expected to leave the EU on Friday, if no breakthrough is established. Europeans are concerned that more extensions will not lead to a consensus in the British parliament. This is after the parliament failed to vote for any of the 16 options presented a week ago. Theresa May is hoping that the new negotiations with the Labour party will yield fresh results.
The Japanese yen was little moved today after the country showed more signs of weakness. The country’s economy has been supported by increased business spending. However, the declining factory and export sectors coupled with a low rate of inflation have left the BOJ in a precarious position. This is because the bank is already implementing QE and interest rates are in the negative territory. Therefore, in case of a major downturn, it does not have enough tools to deal with the situation. In the medium-term, Prime Minister Abe could be forced to extend the delay of the sales tax again. On a larger scale, the country is facing a major demographic challenge of an aging population.
The EUR/USD pair moved slightly upwards today after the weak economic data from Europe. The pair reached a high of 1.1250, which was along a major resistance level as shown below. On the hourly chart, the pair is slightly above the 25-day and 50-day moving averages while the On-balance volume indicator has moved slightly up. However, the volumes continue to remain slightly lower. As such, the pair could remain within these levels as traders wait for the ECB decision on Wednesday.
The USD/JPY pair has been on an upward trend since March 22, when it was trading at the 109.70 level. The pair reached a high of 111.81 on Friday last week. Today, the pair remained close to Friday’s lows and is currently trading at 111.42. On the hourly chart, the pair is between the lower and middle line of the Bollinger Bands, while volumes have decreased. The ADX has declined to 19. Therefore, there is a likelihood that the pair may resume the upward trend to retest the previous highs.
The EUR/GBP pair started an upward trend on April 3, when it reached a low of 0.8500. Today, the pair reached a high of 0.8625. On the 30-minute chart, this price is above the 25-day and 50-day moving averages while the RSI has moved closer to the overbought level. The price is also above the upper line of the Envelopes indicator. The pair will likely continue the upward trend until it tests the important support of 0.8637.