The euro weakened on Wednesday versus the dollar, although trading remains relatively subdued as investors remain sidelined ahead of the European Central Bank monetary policy decision tomorrow. Meanwhile, the U.S. dollar trades overall firmer as the FX market is still in consolidation mode, while stocks are up after a 2-day slide.
"Without much to fundamentally drive the FX space, and since most majors are firmly in consolidation mode, watching key levels and playing the ranges looks to be the best tactical strategy at the moment," says the TD Securities team. "For the EUR, yesterday's high of 1.3140 appears to be the short term cap, but the much more important pivot point is clearly on the downside, at 1.3000/10."
Looking At The ECB decision
The European Central Bank will decide on monetary policy on Thursday and although no changes are expected just yet, investors will be paying special attention to Draghi's rhetoric.
"The single currency may continue to give back the rally carried over from the previous should President Mario Draghi talk up speculation for another rate cut," says David Song, analyst at DailyFX. "As the ECB sees inflation falling below the 2% target over the policy horizon, the threat to price stability may prompt the Governing Council to adopt a highly dovish tone for monetary policy."
Meanwhile, The Euro…
The shared currency fell to a low of 1.3035 on Wednesday and holds a slight bearish tone, trading around 1.3050. If the EUR/USD breaks decisively below the 1.3035 area, it could quickly reach 1.3000, while below this ladder, 1.2950 comes into view. On the other hand, a recovery above 1.3100 would ease the immediate pressure.
According to the Wells Fargo analyst team, the mixed tone seen in the U.S. dollar leaves the impression of a market that, at least for the time being, does not have a strong directional trend. "We expect the recent back-and-forward trading pattern to continue, while maintaining a modestly positive overall bias for the commodity and emerging currencies, and a neutral bias for the euro, yen and pound," they say.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
