EUR/USD Daily Forecast – Euro Eases Back to Range Lows

Focus Shifts Away from US Monetary Policy this Week

Last week, EUR/USD saw some rather volatile swings as several Fed members shared views on their latest stance. So far, a majority of FOMC members do appear to favor easing policy next week.

The notable exception was Fed member Rosengren who stated he would rather wait to take action. This caused a sharp drop in EUR/USD and a general jump in volatility across asset classes on Friday.

This week, the markets will shift focus to the European Central Bank as they are scheduled to meet on Thursday.

At their last meeting, the ECB surprised the markets by taking a more hawkish than expected stance. Indeed, they pushed back their plans for raising interest rates, but the fact that they are still considering tightening is against the grain when compared to other major economies.

Since then, speeches from ECB President Draghi have indicated that the European is moving towards a more dovish stance. Thursday’s meeting will reveal exactly how far they’ve come.

Up until now, the markets have largely focused on the Fed. I expect that this will fade in the week ahead. Not only because of the upcoming ECB meeting, but also as Fed members have entered a blackout period where they will not be speaking or conducting interviews.

This may not last too long. On Friday, the latest GDP data will be released from the US. This is the last important, or rather influential, piece of data from the United States before the central bank meeting

Technical Analysis

Last week’s rally made me think that the pair might be breaking out from a bullish flag pattern. The decline from Thursday’s highs has been quite steep, and so I’m abandoning the idea of a bullish flag.

Rather, it looks like EUR/USD is stuck in a range between 1.1200-1.1280. Currently, the pair is at the lower bound of this range.

On a daily chart, Friday’s decline has resulted in a bearish engulfing candle which will tend to keep pressure on the pair on recovery rallies, at least in the session ahead.

If the pair breaks out of a range in the early week, it may not necessarily offer a strong setup. I think ultimately the ECB will offer the catalyst for EUR/USD’s direction this week.

Bottom Line

• Market participants will shift focus to the ECB this week to see if they will follow the Fed and other central banks in a shift to loose policy.
• EUR/USD is in a range between 1.1200-1.1280.