Today we would take a look at the EUR/USD currency pair. After being stuck in a channel for many weeks, this week the dollar was finally able to push through and make gains on the euro, though it still has not been able to reach highs from before February this year.
The euro is currently affected by only one thing: the upcoming meeting of the European Central Bank this Thursday. It is a policy meeting, and though investors have long been hoping for a change towards a more hawkish policy within the eurozone, we are not likely to get it. The euro has been stronger over the past two years, contrary to what the ECB desires: a strong currency is not good for international trade, as it makes everything more expensive compared to cheaper currencies. Each time traders speculate that the ECB will turn hawkish, this pushes the euro further up and further away from the ECB’s goals. As a result, we have seen a decline in PMI indices across the region and a slowdown in inflation. Due to this, the ECB is more likely to announce a continuation of its stimulus program and stand by its dovish methods for quite a while longer. Their goal is to weaken the euro in order to encourage economic growth.
Meanwhile, the USD has been pushed upwards due to the great performance of 10-, 5-, and 2-year Treasury yields. This indicates that investors are very confident in the strength of the American economy, despite the political insecurities that have followed Trump’s administration from the beginning of his mandate. For now this has allowed the dollar to gain much of its lost ground over the past two months.
In terms of the daily chart, today we have a pivot point for the pair located at 1.2233 (the pair is currently trading below it). We expect the EUR/USD to drop further, so look towards the nearby support levels at 1.2176 and 1.2141. If the pair starts gaining again, be aware of the resistances at 1.2268 and 1.2325. The indicators of technical analysis unanimously agree on a strong sell signal.
