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EUR and GBP Rise After Central Bank Decisions, USD Weakness Prevails

FOREX
  • The greenback slipped another half a percent following yesterday’s reversal lower after the FOMC statement and press conference. The DXY weakness was aided by falls in both USDJPY and USDCHF as global equities retraced gains.
  • Central bank decisions were again the story of the day on Thursday. The Norges Bank kicked things off lifting the key rate by 25bps. Initial weakness for EURNOK, trading down to 10.12, has largely reversed course throughout the afternoon and the NOK remains broadly unchanged.
  • The Bank of England then gave GBP a shot in the arm with a rate hike that was not expected by the majority of surveyed analysts. Cable jumped from 1.3280 to highs of 1.3368 in very quick fashion.
    • This area essentially capped the topside with GBP grinding lower throughout the remainder of the session. Resistance was broken at 1.3308, the 20-day EMA signalling a short-term reversal of the bearish technical outlook and therefore tomorrows price action may be significant for the short-term momentum.
  • Next up was the ECB and while broadly in line with expectations, importantly for monetary policy, the inflation forecast was revised up over the horizon, suggesting a hike in 2023 is still feasible.
  • The EUR remained buoyed following a breach of 1.1300 during the European morning and extended on gains toward 1.1360 as Lagarde spoke. Technically, the pair remains in a range and below 1.1383, Nov 30 high. A break of this resistance would signal potential for a stronger recovery towards 1.1429, the 50-day EMA.
  • Today’s retracement in equities lent support to both the Japanese Yen and the Swiss Franc. USDJPY was unable to remain above 114 and once back below, shot down an additional 40 pips to 113.60. Upside momentum for the pair had been limited by the broad dollar weakness and the reversal in equities was all the pair needed to gravitate lower. In tandem CHF topped the G10 leaderboard, rising 0.6% back below 0.9200.
  • Overnight we will have the Bank of Japan decision, before UK retail sales and German IFO data finish off the week.
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