Euro Hopes Flatten Ahead Of ECB

Includes: ERO, EU, FXE
by: FXstreet

Skepticism seems to prevail amongst euro traders so far, as both bulls and bears seem to be sitting on their hands on the sidelines. Traders are waiting for anything unexpected out of tomorrow's ECB gathering that can break the ongoing stability in the shared currency.

… Upside post-ECB seems more likely, but…

According to market consensus, expectations of a change of the lending benchmark remain close to zero, and a continuation of the dovish tone is set to prevail in the subsequent press conference by President Mario Draghi. Therefore, and leaving everything else equal, the EUR/USD should find some support in a later stage if the forecasts are fulfilled, initially targeting the area around 1.3150 en route to 1.3280

However, what about if the ECB tone exceeds the expected dovishness? Investors should not forget that the eurozone is well into recession territory, and in places digging deeper into it as shown by recent data in the composite and core members. Conversely, both the U.S. and the U.K. are figuring out ways of either halting or slowing down their respective easing cycles, as shown by the last FOMC minutes and recent comments by BoE officials. Although the occurrence of such a scenario carries a minor probability, traders should at least keep it in their minds, along with a consequent descent below the initial support at 1.3000, just to expose 1.2875 afterwards.

Technically speaking, expert Karen Jones at Commerzbank suggests,

EUR/USD is starting to struggle at 1.3150, the 50% retracement of the move down from the 1.3310 peak. We view near term strength as corrective only and will ideally see the market stall here between 1.3150/90.

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.

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