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#1 23-10-2019 15:19:45

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EUR/USD: euro losing ground on Brexit, but trend remains positive

EUR/USD: euro losing ground on Brexit, but trend remains positive ahead of today's ECB meeting

After a 2-month peak at 1.1180 on Monday, the EUR/USD pair posted a sharp decline to a low of 1.1115 early yesterday morning.

Brexit is of course the major subject that has been driving trading since the beginning of the week, and the latest news is not really reassuring.

The UK Parliament rejected on Tuesday night to the limited deadline proposed by Prime Minister Boris Johnson for the review of Brexit legislation.

In practice, this implies that the Brexit deadline will be extended.

European Council president Don Tusk announced that he would recommend that EU Member States approve a postponement of the UK's departure date.

It remains to be seen whether this will be a long-term postponement, in which case uncertainty about Brexit will return to its maximum level, or whether a short-term technical postponement to allow Parliament time to consider the agreement will be decided, which will be the suspense.

Another risk is that UK MPs may ask for too many changes to Johnson's agreement, which would lead to its withdrawal.

Any new information about Brexit will be closely monitored in the coming days.

Focus is now on the ECB meeting

In addition to Brexit, expectations about today's ECB meeting could potentially influence trading of the pair in the short term.

If no monetary policy decision is expected after the package of measures announced at the previous meeting, traders will remain on the lookout for indications that the ECB may act again at the end of the year.

In this respect, it should be noted that TD Securities stated in a note published on Tuesday that "the ECB seems unlikely to provide EURUSD with a strong directional indication. The lack of new policy initiatives is receiving attention elsewhere. A "dovish" message could temper recent gains, but the euro should remain more sensitive to Brexit developments and risk appetite."

As for Danske Bank, it notes that "market reactions should therefore be relatively moderate in relation to the ECB meeting, although we acknowledge that a slight rise in the EUR/USD is possible."

Finally, in a longer-term analysis, Deutsche Bank notes that the ECB does not have much room to further lower its rates, while the Fed is expected to lower them three more times over the next six months, which could stimulate a sustained rise of the EUR/USD pair.

Short-term technical analysis of the EUR/USD

From a technical point of view, we can see several negative signals since Tuesday on the EUR/USD pair:

*a return below the 1.1135-50 support area,
*a return below the 100-hour moving average (it's currently at 1.1136).

However, the upward trend line visible since the beginning of this month (see chart below this article) remains unchanged.

A continuation of the current correction below the psychological threshold of 1.11, and below the 200-hour moving average at 1.1086 would further weaken the bullish profile, but this would only be cancelled below 1.1050.

In this case, a test of the key psychological threshold of 1.10 will be possible.

Currently, the EUR/USD pair is trading around 1.1120 on the forex.

EUR/USD hourly chart

"Anything worth having is worth going for - all the way." - J.R. Ewing



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