Top Story

EUR/USD weakens ahead of ECB

The European Central Bank is widely expected to announce a plan to reduce the pace of its monthly asset purchases on Thursday. But at the same time, the ECB may also extend the duration of the QE programme so that it doesn’t spook the market and choke off economic growth. If this is the case, the central bank’s decision may therefore come across as neutral or dovish rather than hawkish. If so, this could weigh heavily on the euro in the short-term outlook.

So, the EUR/USD may be on the verge of a correction, particularly if the Fed-driven dollar simultaneously remains supported. Ahead of the ECB meeting on Thursday and tomorrow’s release of Eurozone Flash Services and Manufacturing PMIs, the EUR/USD has actually started the new week how it ended the last one: lower. The euro’s weakness may well be telling us that the market is positioning itself for a dovish ECB.

From a technical point of view, the EUR/USD remains in a range. Last week’s inside bar technical formation means there will be a pool of liquidity resting on either side of the 1.1730-1.1860 range.

With the ECB decision scheduled for Thursday, one potential scenario could be that price breaks below last week’s low at 1.1730 and probe liquidity below this level, before going back into the range and then take out resting liquidity above last week’s range at 1.1860.

But if there’s acceptance below last week’s low (should we get there) then the alternative scenario could be a week-long sell-off until price reaches the next levels of support at 1.1615, 1.1500 or even 1.1300.

Meanwhile any sustainable move above 1.1860 would put the bearish view to bed and potentially pave the way for a re-test of the psychological 1.20 handle or even the year 2012 low at 1.2040s, which was already tested a few times late in the summer. 

Source: eSignal 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.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT