Talking Points:

– Next week brings an interesting economic calendar, with the highlights of U.K. inflation on Tuesday and Central Bank rate decisions out of Switzerland and the U.K. on Thursday.

– Dollar weakness remains a dominant theme, but perhaps more surprising is the recent run of strength in the British Pound. Are we seeing traders load-up with longs ahead of next week’s inflation print?

– Sentiment in both EUR/USD and GBP/USD are elevated, currently showing –2.91 and -2.23, respectively. Given retail sentiment’s traditional contrarian nature, this is bullish for the pair.

Next week’s calendar is fairly full with drivers on key themes, and in the week after we hear from the Federal Reserve at a pivotal meeting in which the bank is expected to take the next step towards the highly-untested route of balance sheet reduction. For next week, the big items for currency traders are U.K. inflation released on Tuesday, Australian Employment on Wednesday night and Central Bank rate decisions out of Switzerland and the U.K. on Thursday. Below, we look at three of the more pressing themes in FX markets as we approach this batch of drivers.

Euro Strength Continues Despite Draghi’s Dovish Pleas

EUR/USD continues to show strength after yesterday’s ECB rate decision. While Mr. Draghi echoed his dovish tone from previous meetings, markets continue to anticipate some element of tightening from the European Central Bank in the not-too-distant-future, and this shows as the spot rate in EUR/USD continues to climb. What is perhaps a bit more interesting, however, is how the Euro has performed against other currencies since yesterday’s rate decision, which we’ll look at a bit more below.

The big question around EUR/USD at this point is where resistance may actually begin to show. The pair has rocketed through multiple resistance zones already this year, and just above current prices are a couple of Fibonacci levels that could bring some additional sellers into the market. At 1.2133 we have the 50% retracement of the 2000-2008 major move in EUR/USD, and at 1.2166 we have the 50% retracement of the ECB QE move that takes the 2014 high down to the 2017 low.