– EUR / USD supported at 1.1777 but vulnerable to USD and ECB
– ECB, PEPP, QE rates unchanged but new orientations envisaged
– Other possible action to reach new goals, in a quiet data week
– EUR / USD supported at 1.1700; withstood 1.1880, 1.1940
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- Reference rate EUR / USD at publication:
- Location: 1.1800
- Bank transfers (indicative guide): 1.1390-1.1480
- Specialist money transfer rate (indicative): 1.1705-1.1730
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The euro-dollar exchange rate outlook hangs in the balance ahead of Thursday’s all-important policy update of the European Central Bank, which is crucial to whether the single currency can hold above the nearby support at 1.1777, or if it succumbs to a steadily advancing greenback.
European Unified Unity entered the new week above 1.18 and has shown continued resilience in the face of a long six-week lead from its US counterpart, which saw the Euro-dollar rate test briefly. a key tech support level around 1.1777 last week before recovering. .
The euro has fallen below 1.18 on four occasions in the past few sessions to pull an offer into the market soon after, which brought comfort to chart-watchers, some of whom have been tempted to bet the euro. euro may soon attempt another run towards the 1.19 grip. .
“EUR / USD has so far held on the 2020-2021 support line at 1.1777 on a closing basis. It is trying to stabilize, but will face high resistance at 1.1884 / 95 , last week’s highs and the 23.6% retracement. Currently Elliott’s wave count implies that the rally is corrective only and is expected to end around 1.1940, “said Karen Jones, head of the Elliott. ” technical analysis for currencies, commodities and bonds at Commercial bank.
Jones and the Commerzbank technical analysis team bought the euro-dollar rate last week at 1.1836 and 1.1815 while urging the bank’s customers to do the same in anticipation of an attempt to picked up from the 1.19 level, although they also suggested reducing positions around 1.1880.
The outlook for the single currency is on the line, however, and whether it holds above the recently tested support at 1.1777 until the new week is likely to depend on the European Central Bank (ECB) decision on Thursday, on the response. the market and the The dollar continues to rise.
Above: Euro-Dollar at daily intervals with Fibonacci retracements of the 2020 rally, support line cited by Commerzbank and US Dollar Index.
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“We expect a limited rise in the trade-weighted dollar next week. Not only is it a fairly quiet week on the US data front (suggesting limited catalysts for a rally in the US dollar), but the perhaps cautious / accommodating ECB next week may give cyclical currencies a boost, which would also affect the US dollar. (although EUR / USD continues to decline), ”says Petr Krpata, EMEA chief strategist for foreign exchange and interest rates at ING.
There is little major European or US economic data to guide the euro and the dollar ahead of the ECB’s policy decision at 12:45 p.m. and the press conference at 1:30 p.m., although on Friday morning the July Flash PMI surveys of the sectors manufacturing and services sector be published by IHS Markit.
“We do not expect any change in its key rates or the pace of asset purchases. Otherwise, we think flash PMIs likely rose further in July, suggesting that the Q2 rebound will be sustained in Q3, ”said Jack Allen-Reynolds, economist at Capital Economics.
The latter will provide an overview of the pace of recovery in key drivers of the European economy at the start of the current quarter, albeit after strong increases earlier in the year, and as many European capitals have recently become more concerned about emerging editions of the coronavirus, the danger is that they signal a cooling.
“Look for stronger guidance on confidence in inflation that the ECB will need to raise rates. Also look for guidance on asset purchases well beyond March 2022,” said Giovanni Zanni, chief economist at the euro zone at Natwest Markets, referring to Thursday’s ECB decision.
“The ECB wants to see real evidence of a sustained increase in the underlying dynamics of inflation before it even thinks of a decrease,” Zanni adds.
The ECB’s update is the highlight of the week for the euro and is expected to largely leave the bank’s three different interest rates unchanged, as well as the parameters of its emergency purchase program in the event of a pandemic and the pre-pandemic asset purchase program.
The market will nonetheless listen closely on Thursday in order to formally hear what the bank’s new, higher and officially symmetrical inflation target of 2% will mean for its monetary policy going forward.
“Decisive policy action by the ECB to support the new policy framework could trigger a further sell-off of the euro next week as other major central banks (BoE and Fed) move closer to rate hikes. Failure to act would bring some relief to the euro, ”says Derek Halpenny, Head of Research, Global Markets EMEA and Global Securities at MUFG.
“It would be disappointing if the ECB just updated its forecast,” Halpenny said.
Above: MUFG charts showing the development of EUR / USD six hours after the last eight ECB decisions.
The ECB’s ten-year difficulty in meeting the old inflation target of “below but close to 2%” is likely to require an even larger amount, or simply a longer quantitative easing period than in the past. which is generally negative for currencies and there are Few analysts believe the ECB’s decision is likely to be positive for the euro.
However, the single euro currency rose within hours of the ECB’s first announcement of the results of the strategic review that spawned the new targets, potentially indicating that some form of political action would be needed for the weaken this time around.
“Potential options on the table for policy action include a commitment to accelerate PEPP purchases beyond the third quarter and / or extending the probable end date of the PEPP beyond the first quarter of 2022” MUFG’s Halpenny said.
Halpenny and MUFG team also say ECB could potentially leave its € 1.85 trillion inspired by coronavirus PEPP program until the end of March, when it is expected to begin liquidation, but will provide forward-looking guidance on strengthening its original quantitative easing program known as APP, which was still intended to survive purchases of bank obligations in the era of the pandemic.
Such an action could be at least a temporary headwind for the euro-dollar rate while an omission of it could see the ECB’s July decision having a more neutral impact on the single currency and thus allow the EUR / USD to defy gravity for an additional week. .
Above: Euro-Dollar rate shown at daily intervals with downside end-May Fibonacci retracements indicating possible resistance.