ECB Ahead: Will EUR/USD finally breakout above resistance?

<p>With the latest German ZEW Economic Sentiment data coming out even more optimistic than expected, and US economic data in the form of building permits […]</p>

With the latest German ZEW Economic Sentiment data coming out even more optimistic than expected, and US economic data in the form of building permits and housing starts coming out significantly worse than expected, a stronger euro and falling dollar prompted EUR/USD to surge on Tuesday, partially recovering from the sharp pullback of last week.

For more than the past four months, EUR/USD has been trading within a rising trend. This highlights a generally weakening dollar since the end of last year as the Federal Reserve has become increasingly dovish since its December rate hike, and firmer footing for the euro despite a European Central Bank (ECB) that has not been shy about instituting additional stimulus measures. Tempering those measures, however, were comments last month by ECB President Mario Draghi that indicated the central bank would look to avoid further rate cuts going forward. Those comments should be put to the test this Thursday, when the ECB will announce its rate decision and hold its usual press conference to discuss current monetary policy. Clearly, if the central bank abides by Draghi’s indication that there will be no further rate cuts, the euro should continue to be supported. In contrast, any dovish departures from Draghi’s earlier assertions should likely be met by accelerated euro-selling.

During much of the first half of April, EUR/USD had risen to bump up against major resistance around the 1.1450 level, a price area that has been tested and respected on numerous occasions in the past year. The noted pullback last week, however, prompted a sharp retreat from that resistance. Now that the currency pair has once again begun to rise, the 1.1450-area resistance continues to be the upside level to watch. In the event of continued dollar weakness in the near-term, as well as the absence of any dovish surprises from the ECB on Thursday, a sustained breakout above this resistance could go on to target the next major upside objective at the 1.1700 level, which was the area of the intermediate high reached in August 2015.

EUR/USD Daily Chart

 

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