The EUR/USD exchange rate has been re-adjusted higher after bids from below 1.30 re-emerged along the US trading session yesterday, taking the pair to 1.3030 at the moment of writing.
The latest recovery episode in the Euro comes after EU Finance Ministers struck a deal on the new policy to manage restructuring and liquidation of banks. The deal was a fundamental component to progress towards a full banking union in Europe, an outcome that still looks far away to be fully implemented nonetheless.
What does the EU banking deal mean for the Euro?
Since the EUR/USD is still developing a correction in subtle waves north, all within the context of a well-established bear trend, the decision by policy-makers should be seen as an excuse to take the exchaneg rate back to 'value areas' to sell, rather than producing any major interference with the underlying down bias. The soft reaction higher of the Euro on the news, stuck at the 20-H1 EMA, is a reflection of the low conviction to participate as buyer in this market.
Focus on FOMC voters speeches, EU indicators
A number of FOMC voters are speaking today, which coupled with a busy calendar in the Eurozone and U.S. calendar, leads to think that how price behaves this Thursday will be key to set the end of the week sentiment.
As Kathy Lien, Founder at BK Asset Management, notes, "speeches by FOMC voters Dudley and Powell are extremely important. These members lean towards a more dovish monetary policy stance and if they support Bernanke's view that asset purchases should be tapered this year, the EUR/USD could drop to its next level of support at 1.2935 and then possibly to 1.28." However, Lien believes that if any of these 2 FOMC voters "express skepticism or reservations about Bernanke's timing on reducing asset purchases, the EUR/USD could make its way back up to 1.31" Lien added.
In Europe, we get the German unemployment and Eurozone confidence readings as key data to gauge the next possible move by the ECB. Any single data counts for the central bank now, as to assess whether or not more expansionary policy measures are necessary, so traders will be keeping an eye on this indicators too. Yesterday, ECB President Draghi stood firm saying they are ready to take action if conditions require so.
Will downbeat US GDP affect QE taper pricing?
The depressing downward revision by the United States on its first quarter GDP took its toll in the Greenback, although weakness was temporary. As Lien explains, "The U.S. economy was initially estimated to have grown by 2.4% in the first 3 months of the year but due to a 0.8% overestimation of personal consumption, Q1 GDP growth was revised down to 1.8%."
Despite the fact that the market usually focus on prospective growth outlook, with the last GDP revision in Q1 being an assessment backwards, the revision presented enough deviation from the estimate to raise some eyebrows from market commentators, which saw the number as a chance to speculate the taper pricing might be too premature.
"Given how he has looked beyond the increase in the unemployment rate in May, we feel that the Fed will also downplay the reduction in GDP estimates and move forward with their plan to taper this year" Lien said.
Technical analysis in the EUR/USD
Valeria Bednarik, Chief Analyst at FXstreet.com, shows a bearish stance on the EUR/USD, saying that "it remains under pressure, with the hourly chart showing momentum heading north below its midline, with the 4 hours chart technical indicators also present a bearish tone supporting the shorter term view." Bednarik notes key resistance around 1.3060, 61.8% retracement of its latest daily run, with 1.2980 being the main support to breach in order to resume the downtrend.
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.