European Central Bank keeps rates static, Draghi in focus

The muted market reaction following the European Central Bank’s decision to leaving key interest rates unchanged in March should be no surprise.

Markets had already priced in such an outcome with the main focus directed towards Mario Draghi’s press conference which may come under heavy scrutiny. Although growth and inflation in the Eurozone have followed a positive trajectory, the mounting uncertainty around the elections in Europe could force the Central Bank to adopt a dovish stance.

Investors may seize this opportunity to obtain some clarity on how the Central Bank plans to mitigate the shocks from the rising political risks. With Draghi likely to face some tough questions concerning the high-risk elections in France and the Netherlands, the Euro could be injected with volatility.

It is becoming visibly clear that the growing threat of Eurosceptic parties disrupting the unification of the Eurozone has left the Euro vulnerable to steep losses in the first quarter of 2017. Euro weakness may remain a dominant theme with anxiety set to heighten as the election process in France, Germany and the Netherlands get under way. The EURUSD is fundamentally bearish and a strengthening Dollar from the prospects of higher US interest rates could open a path towards 1.0350 in the medium to longer term. Technical traders could utilize the technical bounce on the EURUSD to send prices back down towards 1.0500 in the short term.

Commodity spotlight – Gold

Gold received a pummelling this week, with prices crashing to a fresh five-week low at $1203.13 during Thursday’s trading session as expectations heightened over the Federal Reserve raising US interest rates next week. A dominant Dollar acquired from the bullish sentiment towards the US economy has attributed to Gold’s sharp selloff with bears firmly in control on the daily charts.

The downside momentum remains healthy with steeper declines expected in the short term if NFP exceeds expectations on Friday. From a technical standpoint, Gold is under intense pressure with previous support around $1210 acting as a light resistance for a decline lower towards $1200. A solid breakdown below $1200 could open a path towards the next relevant support at $1190.

Currency spotlight – GBPUSD

The ongoing Brexit woes have effectively limited any meaningful gains on Sterling during trading this week. Investors seem to have overlooked Wednesday’s spring Budget with sellers simply exploiting the rising anxiety ahead of the Article 50 invocation to attack the Sterling on Thursday.

Sterling may find itself under renewed rounds of selling if the Brexit uncertainties persist this month. From a technical standpoint, the GBPUSD is bearish on the daily charts. Weakness below 1.2150 could encourage a further depreciation towards 1.2000.