Euro Hawks Disappointed by ECB’s Dovish Tone – The Drop Continues
Support Levels Threatened as EUR/USD Sinks Lower
Last week’s ECB Meeting did little to help the bloc’s single currency, as the policymakers decided to scale back the stimulus program at a very slow pace. The interest rate remained unchanged as it was expected, but the European Central Bank confirmed plans to taper the quantitative easing, albeit not in an aggressive manner.
According to the ECB, the monthly APP (Asset Purchase Programme) will amount to 40 billion Euros in April, 30 billion Euros in May, and 20 billion Euros in June. ECB officials mentioned that data reinforced the “expectation that net asset purchases under the APP should be concluded in the third quarter”.
The plan was a disappointment to Euro hawks, especially because during the previous Meeting, the ECB seemed to be more eager to take bigger steps towards dealing with surging inflation. At press time, the single currency is struggling to stay above key support, trading just below 1.0800.
Key Events for the Week Ahead
Europe and the United Kingdom are celebrating Easter this Monday, which will generate irregular volatility and will have an impact on liquidity. The effects may also extend further into the week, which is already lackluster from a data release standpoint.
The Philly Fed Manufacturing Index will be released Thursday at 12:30 pm GMT and is expected to drop to 20.6 from the previous 27.4. The report acts as a leading indicator of economic health but it has a medium impact on the greenback; if the actual figure matches the forecast then we can expect a low impact.
Later in the day, at 5:00 pm GMT, Fed Chair Powell, and ECB President Lagarde will participate in a panel discussion at the Spring Meetings of the International Monetary Fund in Washington. The discussion is titled “Debate on the Global Economy” and may trigger spurs of volatility.
Friday at 7:30 am GMT, the German Flash Services and Manufacturing PMIs will be released, followed at 1:45 pm GMT by the U.S. versions of the same indicators. The reports will have a notable impact on EUR and USD pairs especially if there’s a discrepancy between the consensus and the actual readings.
Technical Outlook – EUR/USD
For almost a year, the EUR/USD pair has been stuck in a diagonal descending channel, creating lower lows and lower highs with regularity. It is currently trading at 1.0790 and has recently broken the previous low at 1.0805.
The immediate barrier is located at 1.0775, a level that last acted as support in May 2020. Considering that the pair last touched this level almost 2 years ago, it is difficult to anticipate how it will behave now.
The RSI is approaching oversold, which increases the probability of a small bounce around 1.0775. The MACD doesn’t show a lot of bearish momentum but the pair is in a clear downtrend, thus the extent of bullish moves should be limited.
