EUR/USD Levels to Watch as ECB Rumors Fly

EUR/USD's range-within-a-range structure presents numerous trading opportunities for the coming days.

Trader 2

This morning, FX traders woke up to reports that the European Central Bank (ECB) was reevaluating the parameters on its Pandemic Emergency Purchase Program (PEPP). Specifically, the central bank is considering further liberalizing its collateral rules to allow purchases of “below investment grade securities.”

For those of you who drifted off reading the last paragraph of central bank jargon, we can simplify it: The ECB is considering following the Federal Reserve and starting to buy so-called “junk” bonds to support the financial system.

This debate is especially timely because the ratings agency S&P will conclude its review of Italy’s sovereign debt later this week, while Moody’s will complete a similar review next month; the country is currently rated BBB at S&P (two steps above the investment-grade threshold) and Baa3 at Moody’s (just one step above the investment-grade threshold). If either of these entities downgrade Italy, it could cause the yields on BTPs to spike and put further stress on the entire concept of a unified continental currency à la the European debt crisis of 2010-2012.

Looking at the chart of the world’s most widely-traded currency pair, EUR/USD traders appear relatively unconcerned for now. As we go to press, EUR/USD is trading near the bottom of its 1-week range between 1.0810 and 1.0890, which is itself near the middle of the month-to-date range between about 1.0775 and 1.0990:

Source: TradingView, GAIN Capital

This range-within-a-range structure presents numerous trading opportunities for the coming days. Short-term traders who favor continue rangebound price action could look for opportunities to buy near the bottom of the 1-week range around 1.0810 and sell (or even flip to a short position) near the top at 1.0890.

Meanwhile, more momentum-focused traders may prefer to wait for a confirmed break beyond the internal range to set the stage for a possible continuation toward support or resistance from the longer-term range. For example, a rally above 1.0900 could pave the way for a continuation toward 1.0990, though traders would of course want to consider the risk-reward parameters of the setup in case we see another reversal.

One way or another, traders shouldn’t sleep on EUR/USD despite the recent lethargic trading conditions – major policy decisions are likely in the coming week, culminating in next Thursday’s ECB meeting!

More from Forex

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account