EUR/USD stuck between rock and a hard place ahead of ECB

<p>The EUR/USD is stuck between a rock and a hard place. Despite Tuesday’s poor US ISM services PMI and last week’s weaker-than-expected jobs report, the […]</p>

The EUR/USD is stuck between a rock and a hard place. Despite Tuesday’s poor US ISM services PMI and last week’s weaker-than-expected jobs report, the dollar has held its own relatively well against the euro, ‘only’ falling around 145 pips since last Wednesday. Today it has recouped some of those losses with the EUR/USD easing back slightly. Admittedly, the only piece of US macro data released earlier has been positive as job openings hit a record high in July. But this is unlikely to have been a major contributor behind the dollar’s comeback as hiring was steady in July and slowed down in August, as the non-farm payrolls report suggested on Friday. The euro meanwhile has generally weakened against other major currencies over the past few days, which explains why the EUR/USD has underperformed compared to, say, the NZD/USD.

Understandably, not many people are willing to hold bold positions in the euro ahead of Thursday’s policy decision from the ECB and Mario Draghi’s press conference. Although virtually no one is expecting to see any changes in ECB’s policy stance at this particular meeting, there is a possibility that the ECB head may signal its intention to further loosen its policy in the coming months. In addition to the ECB uncertainty, there is no significant US data released until late next week with retail sales coming in on Thursday and CPI a day later on Friday. Thus, position squaring is at least partially to blame behind the EUR/USD’s slight retreat today.

Technical outlook: EUR/USD

From a technical perspective, the EUR/USD is obviously stuck inside a long-term consolidation pattern. Within this consolidation there has been some interesting and tradable price patterns that have emerged in recent times. Most recently, the retest of the broken bullish trend line caused the Fibre to drop to a key support area around 1.1130 where the 50 and 200 day moving averages converge. This level has offered good support and with the moving averages both pointing higher again, one could argue that the trend is beginning to look bullish for the EUR/USD.

However, price will need to stage a decisive breakout above the 1.15 area to confirm the bullish trend. Until and unless that happens, one would need to proceed with extra caution, particular around key resistance levels. One such level, around 1.1245-70, has been tested several times on an intra-day basis over the past day and a half. As can be seen from the chart, this area was previously support and ties in with the 61.8% Fibonacci retracement level of the most recent downswing.

If resistance continues to hold here, then there is the potential for the Fibre to drop back to the 1.1130 area again. The next level of support below 1.1130 is around 1.1045, which corresponds with a prior low and the second bullish trend line. Meanwhile if the aforementioned resistance range in the 1.1245-70 area finally gives way, then there is nothing significant top hold price down until the prior swing high at 1.1365 and then the area between 1.1425-1.1500. So there you have it: some key levels to watch ahead and in the aftermath of the ECB day.


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.