EURO FALLS SHARPLY AS ECB MOVES TO END QUANTITATIVE EASING
The Swiss Franc rose even after the Swiss National Bank (SNB) announced that it will continue the expansionary policies into the third year. The bank left the base lending rate at minus 0.75% and the London Interbank Offered Rate (LIBOR) at -1.25 to -0.25 percent. All this was expected by traders because the bank has always supported a weaker franc which supports the export-driven economy. In an interview with CNBC, the bank’s governor, Thomas Jordan said that the decision was driven by the weakening economy which comes after a robust start of the year.
The sterling rose today as a bruised Theresa May left for Brussels. This is after a vote of confidence happened yesterday in parliament. 200 MPs voted in support while 100 members voted against her. She also said that she won’t be the party’s flagbearer in the coming elections. Even with the victory yesterday, investors are aware of the complicated path that lies ahead. This complexity has made many investors avoid the sterling because no one knows what will happen when the proposal comes to parliament.
The euro moved sharply lower today after the European Central Bank (ECB) made its final interest rates decision of the year. As expected, the bank left the deposit facility rate at minus 0.4% as expected. The marginal lending facility was left at 0.25%. The biggest announcement was that the bank was ending the controversial quantitative easing program. This was a program where the bank printed more than €2.5 trillion and purchased securities like mortgage backed securities and treasury bonds. The QE was started in March 2015 and was aimed at rescuing the euro economy from deflationary forces and build confidence. The decision to end QE comes at a time when the EU economy is expected to slow in the coming year. On interest rates, the bank said that:
The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
The GBP/USD pair moved higher today as traders waited for a communication from Brussels. The pair reached a high of 1.2685, which was the highest level since Monday this week. On the hourly chart, the pair’s price is above the 25-day and 50-day EMA with the RSI currently at 63 and the ATR moving down. The pair will likely continue being volatile until a decision on Brexit is made.
The USD/CHF pair declined to a low of 0.9910 after the decision by the Swiss National Bank. The pair then started moving up and reached a high of 0.9930. On the hourly chart, the price is along the 50-day EMA and lower than the 25-day EMA. The RSI is at the 47 level and moving up. The pair could resume the upward trend after the dovish statement by the SNB.
The EUR/USD pair moved down after the ECB released its final monetary policy decision for the year. Initially, the pair reached a high of 1.1390 before falling to an intraday low of 1.1342 as Draghi was having a press conference. The price is below the 25-day and 50-day EMA while the RSI is currently heading to the oversold level. The price is also along the lower band of the Bollinger Bands. Focus will now shift to the Fed, which is expected to release its interest rates decision in the coming week.