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Jignesh Davda

Euro Traders Await ECB meeting

The European Central bank is scheduled to meet on Thursday and market participants will eagerly look to see what policymakers will do. There have been increasing expectations of aggressive easing. The question is whether they will follow through on what the market is looking for.

On Friday, job figures from the United States showed a smaller than expected increase in the number of employed people in August. The unemployment rate remained unchanged while average hourly earnings ticked up last month to come in ahead of expectations. I think it is important to acknowledge that this figure has been firm in the last four readings considering that there were upward revisions for May and June. This seems to suggest some upward wage pressure which stands to impact overall inflation.

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Fed Chair Powell provided his latest views on Friday as he spoke at an event in Zurich. One comment that stood out was that the Fed is neither forecasting or expecting a recession. It certainly seemed like the Fed Chair was not all that dovish. Nevertheless, the markets continue to nearly fully price in a rate cut at the September meeting. The Fed has now entered a blackout period which means they won’t be taking interviews or providing comments ahead of the September Fed meeting.


Technical Analysis

The range in EUR/USD on a daily chart from the past two sessions suggests some exhaustion after Wednesday’s sharp move higher.

EURUSD 4-Hour Chart

Sellers had stepped in on Thursday as the pair tested its 20-day moving average. I expect that this indicator will continue to offer upside resistance in the event of a rally in the early week.

Last week I wrote that I consider the area between 1.1033 and 1.1053 as major resistance and that continues to be the case. The pair is clearly in a downtrend and there is sufficient resistance in this area that can trigger a turn. It will take a sustained move above the 20-day moving average to change the outlook.

Bottom Line

  • Volatility has slowed and a range is forming below important resistance
  • Traders are looking to the ECB meeting on Thursday for direction.
  • I expect the 20-day moving average will continue to offer resistance in the early week.
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