Will Draghi Encourage EUR/USD Run To $1.40?

Includes: ERO, EU, FXE
by: FXstreet

After smart players had the big bucks made last week on the 300 pips rally from $1.34 all the way up to the $1.37 periphery, the price activity observed so far this week has been one of taking profits- and of letting those longs late in the bulls party make half-hearted attempts to mirror a similar performance.

However, the strong presence of buyers from last week does not evaporate that easy, and while there has certainly been a notorious acceleration on profit taking, strong buying interest bidding the euro on $1.3470/$1.35 retracements is still capping prices.

While technicals still suggests we are in the midst of a correction within the context of a daily bull trend, upcoming volatility on the euro will come courtesy of the ECB monetary decision, and what Mr. Mario Draghi will pull out of his hat.

Since the ECB monetary policy decision is expected to provide little new information on current monetary tools being deployed, with actually all of the experts contributing to the monthly FXstreet forecast report agreeing on a wait and see mode in February, the key will be on Mario Draghi's comments on the euro, after criticism over its high value by some high-profile politicians.

So, in order to determine the most immediate quotes in the EUR/USD, one will have to pay close attention to the ECB views, which in view of Kathy Lien, co-founder at BK Asset Management, "is the one agency with the power to stop the euro uptrend."

If Mario Draghi notes no concerns on the euro levels, "it would be a green light for further gains in the currency" Kathy says, adding that "the ECB is no longer in crisis fighting mode because the battle with the financial markets have been won." Kathy expect buyers not to give up the uptrend just yet, and forebodes gains post-the-ECB up to $1.40 in the next few weeks.

If the scenario that Kathy and FXstreet.com contributors expect happens to be true, and the ECB does not alter its policies nor are concerns over the euro levels noted, technicals more than fundamentals will continue to be the primary drivers on a potential upward resumption of the EUR/USD trend.

In this regard, Fan Yang, chief technical analyst at FXTimes and FXstreet.com independent analyst, notes:

EUR/USD is maintaining some short-term bearish momentum that can be seen in the 1H chart, but remains bullish in the in the daily chart. A short-term bearish market even after the risk event is still in the context of a correction, but a break below $1.3170, which would clear some key rising trendlines, would usher in a bearish outlook. Otherwise, beware of the market buying on a dip, with a push above $1.3710 signaling bullish continuation toward the $1.3830 area.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.