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Central Bank Action in the Spotlight

David Becker
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Central Bank Action in the Spotlight

Traders where privileged to experience announcement from two central banks on Thursday, although expectations of a non-event from the Bank of England were realized. The ECB cut its refinance rate by 10 basis points, which means the main refinancing rate is now at 0.15% and the deposit rate at -0.10%.

The news of a rate cut by the European central bank was in line with expectations, but with the news conference slated for 8:30 ET, the Euro began to move lower as expectations for additional moves are generating headwinds for the European currency. The negative deposit rate is the first for one of the largest central banks, which now means that banks will now have to pay to keep their money will the central bank.

The BoE’s left the repo rate and QE unchanged as had been widely anticipated, at 0.5% and GBP 375 billion respectively. There is no statement, as per usual following unchanged announcements, rendering the as-expected decision a non-event for markets. The minutes will be published on Jun-18. This was the first meeting for new member Andy Haldane, who replaces Spencer Dale. Two further MPC changes will occur over the following two months, which will introduce a degree of uncertainty with regard to voting.

The EURUSD dipped to 1.3560, but found support and bounced slightly. Resistance on the currency pair is seen near the 10-day moving average at 1.3610. Momentum has flattened and although the MACD (moving average convergence divergence) index is printing in negative territory, the trajectory of the index is flat. The relative strength index (RSI) which is a momentum oscillator that measures overbought and oversold levels is chopping around near the 33 level which is just above the oversold trigger level of 30.

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