EUR/USD Stuck in a Range

ECB Policy Makers Likely To Keep Monetary Settings Unchanged

By Bogdan Giulvezan

The Euro edged higher against the US Dollar, although last week the pair traded mostly sideways, above resistance turned support. The dollar was affected by news that China’s Evergrande avoided a default, which boosted the appetite for riskier assets. However, some of the losses were erased Friday after Fed Chair Powell mentioned that asset purchases should be reduced but the rate should not be raised yet.

An extended Euro rally is improbable, in part because the European Central Bank is one of the last central banks expected to raise interest rates. The ECB is set to meet this week, which will be the focus of Euro traders, although all monetary policy settings will most likely remain untouched.

Key Events for the Week Ahead

The first three days of the week will be relatively uneventful, with the only notable releases being the U.S. Consumer Confidence survey scheduled for Tuesday and the Durable Goods Orders that come out Wednesday.

Thursday the ECB Meeting takes place but the consensus is that asset purchase tapering will start next year and changes to the interest rate will be made in 2023. This means that the ECB will be one of the last central banks to increase rates, later than the U.S. Fed and the Bank of England. The Monetary Policy Statement is set for release at 11:45 am GMT, followed at 12:30 pm GMT by the usual press conference.

The U.S. Advance GDP is scheduled for release at the same time as the ECB press conference and is expected to show economic slowdown: forecast 2.6%; previous 6.7%.

Friday’s main event will be the U.S. Core PCE Price Index, which is rumored to be the Fed’s main inflation gauge; however, the CPI is released about 10 days earlier and it tends to garner more attention. The release is scheduled for 12:30 pm GMT and the forecast is a 0.2% change (previous 0.3%).

Technical Outlook – EUR/USD

The pair is currently trading at 1.1640, just above 1.1615, which was previous resistance now turned support. The last few candles show long wicks, which is a sign of indecision and lack of momentum.

Although price has been climbing, the overall bias still favors the bears and the pair is stuck inside a long-term descending channel. This means that further upside movement should be capped by the upper border of the channel, which is very close to the 50 days Moving Average, thus creating a confluence zone that will act as a stronger barrier.

A move below the current support will bring in more sellers and will make 1.1500 the next destination. Whether the pair will travel this distance within a week or longer will depend on the ECB Meeting and the other events scheduled for this week.