EUR/USD stuck between rock and a hard place ahead of ECB
The EURUSD 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. Since yesterday, it has recouped some of those losses with the EURUSD 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 last Friday. The euro meanwhile has generally weakened against other major currencies over the past few days, which explains why the EURUSD has underperformed compared to, say, the NZDUSD.
Understandably, not many people are willing to hold bold positions in the euro ahead of Today’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 EURUSD 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 pair 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 EURUSD.
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.
If resistance continues to hold here, then there is the potential for the pair 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.
