Today’s ECB decision, which will be announced at 13:15 BST, will be in the spotlight of global markets and has a good chance to drive volatility on the EURUSD. What’s more, both the rate hike and the rate hike will come as some kind of surprise to the markets, which are not decided on the forecast of Christine Lagarde’s final decision. In the basic scenario ECB will hold rates unchaged at 4,25% level. Volatility may be even greater after simultaneous macro data from the United States, published at 13:30 BST, among which we will learn retail sales, PPI inflation and the weekly change of jobless claims, which may shed more light on the condition of the labor market overseas. It seems that keeping rates unchanged may keep the EURUSD in a downward channel, and will be a kind of materialization of speculation about a halt to the ECB cycle due to the weakening eurozone economy, for which the previous 9 rate hikes in a row have been shock therapy (with still unknown effects).
On the other hand, a rate hike could strengthen the EUR against the dollar and confirm that the economic trend observed by the ECB is not yet so weak that the bank has decided to prioritize demand stimulation over fighting inflation. Of course, the Eurodollar’s reaction will be complemented next week by the Fed’s decision, but today’s moves could be a kind of prelude to a deepening of declines or a potential reversal of the medium-term trend, in which the USD has begun to strongly outweigh the EUR. It is worth noting that macro conditions in Europe are incomparably weaker against the US, which is perfectly evident in the industry so upward movements on the EUR may still have mainly speculative potential, and potentially worsening data may ‘extinguish’ further buying waves – as long as macro data in the US continue to be as strong against Europe. Christine Lagarde will start conference at 13:45 BST.
Looking at the chart of EURUSD on the D1 interval, we can see that the downtrend is marked by a downward channel, from which the exit could begin only after a decisive breakthrough of 1.08. Until then, however, the bulls should encounter resistance at 1.078 where we see the downward impulse from the beginning of September.On the other hand, a possible fall of the eurodollar below the three moving averages SMA200, 100 and 50, which are currently at similar levels at 1.073 may suggest that momentum will pull EURUSD towards 1.06 – this year’s new lows.
Source: xStation5