Will ECB Drag EUR/USD lower?
Fawad Razaqzada October 25, 2018 7:02 AM
I am trying to think how and why the European Central Bank or its President Mario Draghi might want to give the euro a boost today and can’t find one good reason. I think Draghi will give very little information in the way of forward guidance. But overall he is more likely to come across as being slightly more dovish than slightly more hawkish for a variety of reasons – not least this week’s disappointing manufacturing PMI data from the Eurozone. But we have also seen a stock market correction owing in part to ongoing trade tensions, Brexit stalemate and of course the stand-off between Italy and the EU regarding the former’s budget. That being said, Draghi is unlikely – at least at this stage – to push back rate hike expectations. He is likely to re-iterate that QE will end this year and interest rates will be tightened after the next summer. So the EUR/USD is likely to remain under pressure, we think.
Ahead of the ECB, the EUR/USD is currently down for two consecutive weeks and is also negative on the month. So clearly, the trend is bearish. But it is still holding above that 1.13 handle, which has been a long-term support and resistance level in the past. This level provided good support back in August, so the liquidity that would be resting below it would now be an obvious target for the bears. Another interesting level on the downside to watch is at 1.1350/5, which was the high of the hammer candle that was formed when the EUR/USD rebounded from the August low and this level has not been re-tested on the daily time frame. But will price get to these levels today? Well, it is almost entirely dependent on the outcome of the ECB. If Mario Draghi happened to be more dovish than expected then this should be euro negative and so the EUR/USD could head further lower. Otherwise, we could see an oversold bounce – particularly because some market participants have presumably pre-empted a dovish ECB which is why the EUR/USD and other euro crosses have been weakening of late. Meanwhile, key short-term resistance is now at 1.1430-40 area, which had been support until yesterday’s breakdown. Thus, a closing break back above this level would be a bullish short-term development, as it would indicated the sellers who entered following yesterday’s breakdown are trapped.
Source: TradingView and FOREX.com
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 Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.