US dollar slips ahead of Jerome Powell’s speech

The British pound jumped today after the ONS released better-than-expected economic data. The numbers showed that the UK economy contracted by 5.8% in March. As a result, the economy shrunk by 2.0% in the first quarter, which was slightly better than the expected decline of 5.8%. The economy declined by 1.6% on an annualised basis. According to the ONS, all parts of the economy contributed to this decline. For example, business investment rose by just 0.7% in the quarter while manufacturing and industrial production fell by 9.7% and 8.2% respectively. 

The US dollar weakened slightly as the market waited for a speech by Jerome Powell. In the speech, he is expected to talk about the state of the economy, and most importantly, he is expected to mention negative interest rates. This is after Donald Trump suggested that the bank should follow the footsteps of the ECB and BOJ in implementing rates. This would be unprecedented for the US economy. Still, analysts warn that negative rates would be a bad idea for the US economy. For one, it would raise serious doubts about the health of the economy. Also, it would hurt the banking sector and savers in general.

The euro gained slightly against its key peers as the market reacted to the latest industrial production data. Data from Eurostat showed that production declined by 11.3% in March after falling by another 0.1% in February. This decline was relatively better than the 12.1% that analysts were expecting. Meanwhile, production fell by 12.9% on an annualised basis. In addition, economist at the ECB rebuffed claims that negative rates were negative for the banks. In a report, they said that the policy was “broad neutral” for bank profitability. This means that the ECB may retain negative rates for longer than what analysts were expecting.

EUR/USD

The EUR/USD pair jumped to a high of 1.0877 ahead of a speech by Jerome Powell. On the hourly chart, the price moved above the 50% Fibonacci retracement level. It is also slightly above the 25-day and 50-day exponential moving averages while the RSI is nearing the overbought level of 70. Therefore, the pair may continue rising, and possibly test the 61.8% retracement level at 1.0900 ahead of the speech.

GBP/USD

The GBP/USD pair rose to an intraday high of 1.2340 as the market reacted to the GDP data from the UK. On the hourly chart, the pair is a few pips below the 23.6% Fibonacci retracement level. The price is also along the upper line of the Bollinger Bands while the RSI has been on an upward trend. Therefore, the pair may continue rallying as bulls attempt to retest the 38.2% retracement level at 1.2400.

AUD/USD

The AUD/USD pair rose as the USD weakened ahead of the speech. On the four-hour chart, the price is slightly above the 50-day and 100-day exponential moving averages while the volatility, as measured by the Average True Range (ATR) has fallen. It is also slightly above the dots of the Parabolic SAR. Therefore, the pair may continue rising and possibly retest yesterday’s high of 0.6572.