EURUSD & GBPUSD Outlook: Week of 3/16

by on March 17, 2014 12:35 pm BST

Last week’s EURUSD outlook played out well as the pair challenged the topside of the price channel, but the subsequent price action closed below resistance at 1.3940. The euro has gained 6.6 percent against the greenback over the last year, but the recent dollar strength will wear on the pair and bring it to a more reasonable level.

European Central Bank (ECB) President Mario Draghi is hoping that his forward guidance will unwind some of the bullishness in the euro, but market participants are more likely to take his actions into account over the long-term. Low-inflation and the need for low interest rates will continue to support the euro, relatively speaking.

Draghi is has not been worried about deflation, but the today’s annual eurozone consumer-price index (CPI) data showed a decline from .8 percent to .7 percent. Eurostat’s initial expectation was .8 percent, and the euro’s strength is blamed for the lower consumer pricing data. The ECB projects inflation to remain at one percent this year and 1.3 percent in 2015, still well below the two percent target.

EURUSD price action has trended slight higher since the rejection of the channel resistance and high of 1.3966, but the pair has still remained below 1.394. The situation strength of the US dollar is keeping the euro at bay, slightly, but support has held at 1.3890. Deeper support for the pair can be found at 1.3835. Additional resistance will be found at the most recent high, but a close beyond this will signal a move to 1.4000.

1D Chart of EURUSD

1D Chart of EURUSD

The pound is lower against the dollar on the Ukraine-Russia tensions. The GBPUSD has remained sideways for quite awhile as price action has trended between 1.6645 and 1.6600, although traders have tested the lower limits a few times.

The Sterling has been a major outperformed and a successful carry trade over the last year on hopes of a rate hike from the Bank of England (BoE) due to continued economic growth. However, the BoE Governor Mark Carney is not willing to take the bait as he awaits for further signs of economic stability.

“Most people agree that potential gross-domestic-product growth is lower than before the crisis and will continue to be lower for at least a few more years,” said Torsten Slok, chief international economist at Deustche Bank. The extended low rate policy of central bankers is here to stay for a while.

Carney said “We need to take all those factors into account so that we are setting policy that’s consistent with an economy operating at it potential.” Nevertheless, low interest rates for an abnormally extended period of time have had severe consequences throughout history.

Price action has grown bearish as price continually tests the lower bounds of the consolidation channel. A close below the channel will signal a steeper move downward the 50 EMA at 1.6550, while additional support will be located at 1.6520 and 1.6545.

GBPUSD has topside resistance at 1.6650 and 1.6670.

1D Chart of GBPUSD

1D Chart of GBPUSD