Last week's overview, this week's key events

Source: Dukascopy Bank SA
The time has come. This week we can, finally, see the Euro performing a solid rally to the downside. Last week, bears already made an attempt to penetrate a major level at 1.36, meaning traders are pricing in more than just a shift in the rate corridor. It is clear now that the market psychology and positioning has changed radically over the last few days. Over the last week, Mario Draghi and other ECB's officials have made it clear that fresh action is inevitable. The last portion came from ECB Executive Board member Yves Mersch. He claimed the central bank can offer a combination of policies to fight persistently low inflation and low credit growth, while also mentioning that the timing of the implementation can vary. When answering reporters' question, Mersch said there is a possibility all three rates will be revised, as the so-called corridor should be maintained, because otherwise it can harm interbank markets. It is difficult to predict the potential market reaction on Thursday, as everything will depends on tools policymakers will use. Moreover, average market volatility does not mean a lot (25 pips during the last five months). Nonetheless, the penetration of the 200-day SMA is already a clear indication of change in the sentiment, while key levels for short traders are located at monthly S2 and S3, being at 1.3582 and 1.3492 respectively.

Another currency, which will be worth paying attention to, will be the Aussie, as during each of the five trading days we will have a piece of important fundamental data. Over the last five trading days, the Australian currency was the best performing among nine major currencies, with AUD index rising 1.21%. This week, however, all of these gains can be erased, keeping in mind disappointing budget, which will definitely take a toll on the mood of Australian consumers and companies as well as will be reflected in RBA's comments. The central bank will stay pat on its monetary policy, however, dovish comments can provide a massive selloff of the currency, pushing the AUD/USD pair potentially below the 200-day SMA and monthly S1 around 0.9172/58.

In contrast, the Sterling was the main loser last week, falling 0.71%. The currency can be supported by fundamentals this week, as Markit will unveil figures from all three pillars of the economy. Effects of harsh winter are waning, while the economy is building up steam, and according to Britain's business lobby groups and watchdogs, will expand around 2.7-3.1% this year. While BoE's meeting on Thursday is unlikely to offer any surprises, activity in manufacturing, construction and services sectors is likely to strengthen in May, pushing the cable first to 1.6777 and then to 1.6902.
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