Euro Rangebound Ahead of ECB Meeting

The U.S. ISM Non-Manufacturing PMI improved to 56 in February from 55.2 in January. This is better than the pre-report forecast of 55.0. Crude oil rallied on the news along with equity prices. The EUR/USD was flat, but the GBP/USD is posting a slight gain.

The EUR/USD traded higher early in the session on better-than-expected Euro Zone economic data, but the main focus for traders this week is the European Central Bank policy meeting. Overnight it was reported that the Euro Zone PMI remained well below the 50 mark dividing growth from contraction, it did decline from the previous period however. Although the ECB policy statement is expected to have a dovish tone, it is not expected to cut its benchmark rate at this time. Current data suggests that the market is building in an April cut; however, this is reliant on further deterioration in the economy.

Italy continues to be on the forefront. Although traders are taking a wait-and-see attitude toward the recent election, the longer the country operates without a new government, the more bearish the sentiment grows. It looks as if Italy is planning another election, but if there are any delays, the Euro may feel a little more heat.

The GBP/USD is giving up earlier gains. Without a major report to react to, one has to conclude that today’s early rally was attributed to short-covering. Technically, a new main bottom has been formed at 1.4985, but the main trend will not turn to up until the main top at 1.5221 is violated. If there is a strong short-covering rally on this move, the market may retrace as high as 1.5415.

Like the Euro, British Pound traders are waiting for this week’s Bank of England policy meeting. Traders are mixed about whether the central bank will apply more stimuli to the economy. They do agree, however, that the central bank will leave interest rates unchanged.

April gold traded a little better, basically mirroring the movement in the U.S. Dollar. The strong rally in the U.S. equity markets is probably weighing on the market today. Based on the short-term range of $1554.30 to $1619.70, the market is finding good resistance inside the retracement zone at $1579.28 to $1587.00.

April crude oil showed a slight gain after getting support from the upbeat U.S. ISM Non-Manufacturing PMI report. Oversold conditions could also be contributing to the small rally. This market has been taking a beating since February 13 when it topped at $98.65. The stronger dollar is the leading contributor to this weakness. If the dollar turns lower, then look for a short-covering rally in crude oil. Worries about a slowdown in the economy are also weighing on prices.