European Open: BOE expected to hike, Euro holds 1.1300 ahead of ECB

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Matt Simpson financial analyst
By :  ,  Market Analyst

Asian Indices:

  • Australia's ASX 200 index fell by -15.3 points (-0.22%) and currently trades at 7,072.40
  • Japan's Nikkei 225 index has fallen by -270.13 points (-0.98%) and currently trades at 27,263.47

UK and Europe:

  • UK's FTSE 100 futures are currently down -4.5 points (-0.06%), the cash market is currently estimated to open at 7,578.50
  • Euro STOXX 50 futures are currently down -10.5 points (-0.25%), the cash market is currently estimated to open at 4,211.55
  • Germany's DAX futures are currently down -54 points (-0.35%), the cash market is currently estimated to open at 15,559.77

US Futures:

  • DJI futures are currently down -13 points (-0.04%)
  • S&P 500 futures are currently down -324.5 points (-2.15%)
  • Nasdaq 100 futures are currently down -41.5 points (-0.91%)

20220203moversFOREXfx

The disappointing earnings report from Meta Labs (formerly Facebook) weighed on sentiment overnight with tech stocks in Japan leading the declines. The ASX 200 was the least effected and down just -0.2%. European futures have opened around-0.2 to -0.3% lower, whilst Nasdaq futures have fallen over -2% last night.

BOE expected to hike rates at 12:00 today

The Bank of England are expected to raise interest rates from 0.25% to 0.5% today, which would make it their first back-to-back hike since 2014. Inflation has been the key driver behind the expectations, although be warned that if BOE do not hike it wouldn’t be the first time they have surprised markets in recent months. Still, it also begs the question as to whether this hike has been priced in, so perhaps traders will need a ‘hawkish hike’ to justify bidding the pound further if the 25-bps hike arrives today. GBP/USD has pulled back from its 8-day high and is holding above its 20-hour eMA. EUR/GBP is holding steady and up just 9 pips from yesterday’s close as it braces itself for today’s ECB meeting.

ECB rate decision at 12:45 GMT

The euro had risen 1.9% from Friday’s low to yesterday’s high. It has more than erased its post-FOMC losses and its rally has been supported by yield rising yield differentials. A record CPI print for the eurozone places extra pressure on the ECB to bow down to market expectations and start talking about hikes. And that makes today’s meeting pivotal for the euro’s near-term direction as there is clearly some expectation the ECB will cave today. Failure to do see could send EUR/USD (and yield differentials) move sharply lower.

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Technically, EUR/USD finds itself at an interesting set of levels. The hourly chart is within a strong uptrend but prices are coiling within a triangle formation. The 20-hour eMA has provided dynamic support but, should we see prices move lower then the monthly pivot and weekly R1 sits around 1.1280 for potential support. As long as prices hold above that support zone then we retain a bullish bias and see potential for a return to 1.1330. A break below 1.1280 warns of a countertrend move.

 

ECB guide

 

Gold extends its corrective bounce

Should euro moves higher it could also assume a weaker dollar, and that could further support gold prices. We outlined a scenario yesterday where gold could fall much further but, until we see the dollar move lower with gold higher against other currencies, XAU/USD is likely to remain in a countertrend bounce. A break above yesterday’s highs (1810.82) assumes bullish continuation over the near-term.

FTSE 100 reaches 7600 target

The FTSE 100 reached our 7600 target yesterday after rallying directly from the open. Yet this level has proved to be a tough level to crack this year so far and it lands right near the weekly R1 and monthly R1 pivot. A pullback form this level would not be unexpected, and a break above 7620 is required to clear the YTD highs.

20220203moversFTSEfx

FTSE 350: 4283.88 (0.63%) 02 February 2022

  • 217 (62.00%) stocks advanced and 114 (32.57%) declined
  • 8 stocks rose to a new 52-week high, 1 fell to new lows
  • 38.57% of stocks closed above their 200-day average
  • 66.86% of stocks closed above their 50-day average
  • 13.43% of stocks closed above their 20-day average

Outperformers:

  • + 5.70% - Ocado Group PLC (OCDO.L)
  • + 4.85% - Discoverie Group PLC (DSCV.L)
  • + 4.81% - Bytes Technology Group PLC (BYIT.L)

Underperformers:

  • -5.69% - Antofagasta PLC (ANTO.L)
  • -5.53% - Harbour Energy PLC (HBR.L)
  • -3.99% - Energean PLC (ENOG.L)

Up Next (Times in GMT)

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