EUR USD braces for ECB stimulus

EUR/USD dropped to a one-month low approaching its 1.0800 support target last week as expectations of further stimulus by the European Central Bank (ECB) weighed on the euro. The long-awaited ECB press conference on Thursday of this week will provide more clarity as to whether these expectations come to fruition.

The EUR/USD drop during the first half of last week extended the currency pair’s recent plunge below both its 200-day and 50-day moving averages as well as a key uptrend channel extending back to early December’s low near 1.0500.

Starting in the latter half of last week, however, a falling US dollar prompted a EUR/USD rebound that boosted the currency pair back up to both the noted moving averages as well as the bottom of the noted uptrend channel. To start the new trading week, Monday has seen that rebound sustain its strength as it has moved progressively closer to the key 1.1100 resistance area.

This rebound faces strong technical and fundamental challenges, however, particularly due to the specter of further ECB easing and expectations regarding the outcome of Thursday’s ECB conference. These expectations should continue to place sustained pressure on the euro, especially in light of the persistent monetary policy divergence between the ECB and the US Federal Reserve and the still-viable potential for further US rate hikes by the Fed in the foreseeable future.

With any reversion of the EUR/USD back down below its main moving averages and the noted trend channel, the key downside support target remains at the 1.0800 level, followed further to the downside by the major 1.0500 support objective.