EUR/USD approaching potential breakout level ahead of ECB

A heavily pressured US dollar that has suffered from lackluster US economic data of late, most notably weaker-than-expected job creation numbers last week, has helped contribute to a well-supported and rising EUR/USD. Alongside dollar weakness, of course, has been a strengthening euro that has been boosted by generally rising economic growth prospects in Europe.

These rising prospects will play a key role in how the European Central Bank (ECB), which announces its monetary policy decision on Thursday, may or may not change its rhetoric from the exceptional dovishness that has long characterized the ECB to a potentially more hawkish outlook. Although the central bank is not expected to make any major policy changes on Thursday, markets will be closely scrutinizing the ECB’s statement and press conference for any hints of potential policy tightening on the horizon, particularly with respect to short-term interest rates and its massive asset purchase program. Any such hints or indications would be euro-positive.

The combination of a pressured dollar and rising euro ahead of the ECB decision has extended a very clear and well-formed uptrend for EUR/USD that has been in place for the past two months, since early April. On Tuesday, the currency pair once again came close to approaching major resistance around the 1.1300 level. With any ECB comments on Thursday that may potentially be more hawkish than expected, the euro could receive a further boost that results in a breakout above resistance. In such an event, an extension of the two-month uptrend for EUR/USD will have been confirmed, with a higher leg potentially targeting the next major upside target around the 1.1450 resistance objective.

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