EURUSD Longs Preferred – Market Flat Ahead Of ECB Meeting

The Euro was flat against the US dollar on Thursday at around 1.10184 as investors stayed cautious ahead of the European Central Bank (ECB) policy meeting.

The ECB is not expected to intensify its stimulus measures today, but many analysts believe that the central bank will take action at the September meeting. According to market sources, the weakness of the euro has provided an automatic stimulus to the economy, which meant that the ECB could afford to wait for a rate cut.

In addition to the negative impacts of the Brexit vote to leave the EU that threatened the bloc’s stability, Europe has to deal with a series of terror attacks and concerns over the Italian banking system. Italian banks alone have €360 billion in non-performing loans on their books while the government of Prime Minister Matteo Renzi is seeking to organize a bailout.

Many economists believe that policymakers will not cut rates into negative territory due to concerns about how the low rates would pressurise the profitability of the banking sector.

The International Monetary Fund has lowered its forecast for global growth in 2016 after the results of the Britaish Referdum, in its latest outlook. IMF only cut its global growth forecast for 2017 by 0.1 percentage points, but the downgrade for the UK was much greater. After reducing its forecast for UK growth in 2016 by 0.2 percentage points in comparison with the April projection, the Fund further reduced the UK growth estimate for 2017 from 2.2 to just 1.3 percent – the largest estimated decline for any advanced economy.

The US dollar index, measuring the strength of the greenback against the basket of major currencies, dropped around 0.3% after reaching the highest level in 4 months on Wednesday as traders raised their expectations that the US Federal Reserve (Fed) would tighten the monetary policy by the end of this year.

eu d1

Fig: EURUSD D1 Technical Chart

EURUSD has been moving cautiously between the range of 1.09789 and 1.11882 ahead of the ECB meeting. The pair has come under the pressure from the two moving averages above, along with the trend indicator suggesting short positions. RSI is hovering around level 41, and expected to turn down and help build a bearish trend in the pair. It is anticipated that the price will continue moving sideways until the result of the policy meeting. After that, it may test the support level of 1.09789 before bouncing back.

Trade suggestion

Buy stop at 1.10212, Stop loss at 1.09648, Take profit at 1.11027

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