Forex: The Market Needs A Trigger In The EUR/USD

Includes: FXE, UDN, UUP
by: FXstreet

The EUR/USD has performed its second straight consolidation session on Monday, and despite the pair remaining under pressure, the euro stands barely 10 pips away from its past Asian opening. The pair closed the day above the 1.3000 level.

The euro is taking a breather despite the fact that Italy's political uncertainty persists and there was no news from the Eurogroup meeting. U.S. stocks closed higher on the day, easing initial losses. Both stocks and currencies markets are trading with all eyes on central bank meetings and the Friday employment report in the U.S.

As for the short term, the hourly chart continues to present quite a neutral stance, as indicators hover around their midlines and price around a flat 20 SMA. With an EUR/USD trading at 1.3020, next support at 1.2967 (low March 1) ahead of 1.2929 (low December11) and finally 1.2910 (76.4% of November-February rise). On the flip side, a breakout of 1.3065 (hourly cloud top) would aim for 1.3101 (high March 1) and then 1.3140 (MA10d).

"The pair may advance towards 1.3080 before finding buyers," points out analyst Valeria Bednarik. "However, bigger time frames maintain the overall bearish trend, and the downside continues to be favored, with a break below 1.2980 opening doors for a 100 pips slide today."

EUR/USD Glued At 1.3000 Ahead Of Central Bankers

With the EUR/USD consolidating levels around the 1.3000, the pair is looking for a catalyst. It may be one of the central banks that is scheduled to publish its monetary policy this week. RBA, BoC, ECB, BoE, and BoJ will publish their monetary policy decisions this week.

On Tuesday, the RBA is expected to stay on hold. According to FXWW's analyst, Sean Lee, the "RBA is expected to leave rates on hold, but Governor Stevens' subsequent statement may contain less dovish language." In Europe, many market voices are asking for a rate cut in the ECB, but major expectations are that Draghi and his team will maintain his refi rate unchanged.

"The euro is still likely to remain under pressure, however, as it tests the bottom of this year's 1.30-1.37 range against the dollar. In particular, uncertainty over what the ECB will do in response to continuing weakness in the eurozone is likely to weigh on the single currency," assessed M. Mohi-uddin, Director of FX Strategy at UBS.

In this regard, the TD Securities team notes that the broader trend still remains bearish, though, for the weeks ahead, and 1.2880/2900 looks to be the next important support below spot. "That said, it may be prudent to remain more neutral since the ECB on Thursday is the EUR event risk of the week, and our call is that they will remain on hold (while there is a decent risk that they will cut the refi-rate)," TD says.

But according to Merrill Lynch, if the ECB decides to leave rates unchanged, it would be the first sign of economic recovery. "While this makes it possible in principle for the ECB to ease policy further, we would not expect it to change monetary policy as long as data show a stabilization in the deterioration in the economy and a slow recovery as the year goes by, in line with first hard data and our projections," Merrill Lynch wrote.

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.