EUR/USD Daily Forecast – Euro at Critical Support

EUR/USD had some volatile swings as a result of the ECB meeting but closed relatively unchanged on Thursday.
Jignesh Davda

ECB Keeps Rates on Hold but is Ready to Ease

The ECB kept interest rates unchanged at their meeting yesterday but sent a clear message of their intentions to ease policy at a later date.

The markets had been pricing in about a 50% chance of a cut yesterday. Although the message from yesterday’s meeting was dovish, the fact that the central bank did not act caused a mixed reaction in EUR/USD.

The currency pair briefly spiked to its lowest level this year, however, it doesn’t look like much of a stop run took place. The decline was brief and the reversal that followed took the pair to above levels ahead of the rate announcement until eventually, sellers stepped in at 1.1188 resistance.

The Focus Shifts to the Fed

With the ECB out of the way, I suspect the markets will once again start focusing on the US monetary policy. The Federal Reserve is expected to cut rates at their meeting next week.

I think between the upcoming Fed rate cut and the lack of a rate cut yesterday, EUR/USD is in a good position for a relief rally. This view is also aided by the fact that the pair is trading near a major support level.

Second quarter GDP figures will be released out of the US today. This will probably be the last economic release that stands to impact the Fed’s decision next week. It is scheduled for release later today, and as an advance reading, volatility is expected.

Technical Analysis

The big support level that I’m talking about falls at 1.1118. This level has held the exchange rate higher for the year thus far. This is after a test in April, May and once again yesterday.

EURUSD Daily Chart

I suspect it will take a sustained drop below the 1.1100 handle to trigger some stops and continue the downside momentum. But considering that the ECB was not able to provide a catalyst for such a move, I think a relief rally appears quite probable from current levels.

Of course a strong US GDP report can trigger a downside break in the pair. But I think there would need to be a significant deviation from expectations.

EURUSD 4-Hour Chart

Resistance at 1.1184 held the upside yesterday. If we manage to get above the level, the next area of interest I am watching falls at 1.1265. Keep in mind the psychological 1.1200 handle also comes in play. In this context, I think it’s important to watch out for an overshoot of 1.1184 in a bullish scenario.

Bottom Line

  • EUR/USD is positioned well for a relief rally.
  • Advanced US GDP figures will be released later today and stand to accompany a volatile reaction
  • The markets will start to focus on the Fed, who meets next week and is expected to cut rates.
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