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#1 09-06-2021 13:13:47

johnedward
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From: Paris - France
Registered: 21-12-2009
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EUR/USD: a nervous range ahead of tomorrow's ECB's verdict

EUR/USD: a nervous range ahead of tomorrow's ECB's verdict


A nervous wait-and-see attitude is upon us, with traders clearly hanging on the actions and comments of the European Central Bank as it concludes a closely watched Governing Council meeting tomorrow amid an asynchronous economic recovery on both sides of the Atlantic.

"With inflation picking up in both the US (leading to higher imported inflation) and the Eurozone, one would expect the ECB meeting to prompt a policy adjustment. This did not happen. The ECB, whose Governing Council is dominated by doves (supporters of a policy of sustainable support for the economy), should announce that the existing measures will be maintained as they are," predicts Will Gerlach, iBanFirst's local country manager. According to him, the ECB should "confirm that the rebound in inflation observed over the last few months is only transitory", which should encourage the institution to maintain its support for the economy unchanged.

Analysts at CM/CIC Market Solutions see "an ECB that is still cautious and accommodating both in its communication and in its tools. It should no longer commit to buying more assets than it did in January and February (a promise that was made for just one quarter) due to greater confidence in the outlook, leading to an upward revision of its economic scenario. On the other hand, it will insist that it will buy what it needs to maintain very accommodative financial conditions, even if it means buying large amounts if necessary."

On the statistical front, Germany's ZEW economic confidence index (or more commonly ZEW index), fell back below 79 this month, compared to a target of 86.0 and a May reading of 84.4. "The economic recovery is progressing. Although the ZEW economic sentiment indicator fell this month, it remains at a very high level. The drop in expectations is probably largely due to the much better assessment of the economic situation, which has now returned to pre-crisis levels. Financial market experts therefore continue to expect a strong economic recovery over the next few months," says ZEW (Zentrum fur Europaische Wirtschaftsforschung) President Professor Achim Wambach on current expectations. In addition, German industrial production in April (-1.0%) in monthly terms disappointed. The US trade balance was perfectly in line with expectations.

On the statistical agenda today: wholesale inventories at 16:00 (European time) and oil inventories at 16:30. These are all indicators that can be used to gauge the degree to which the economy is heating up in the middle of the post-Covid recovery. These are all valuable elements for the Fed, which will be meeting its monetary policy committee on 15 and 16 June.

Right now, the EUR/USD pair is trading at $1.2194.

KEY CHART ELEMENTS
Friday's pullback to the 20-day moving average (in dark blue), which was quite sharp, was not followed by immediate bearish confirmation. The doji that is currently forming attests to this. The trend line mentioned remains technically a resistance, but its role needs to be confirmed before resuming bearish positions on the Euro/Dollar currency pair, which is subject to powerful opposing forces.

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the EUR/USD is neutral.

We will maintain this neutral view as long as the EURUSD is positioned between support at $1.2045 and resistance at $1.2266.

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