An early day rally in EUR/USD was short-lived as sellers dominated at the European open, ahead of European Central Bank Meeting.
European PMI Data Comes in Mixed
PMI data from France, Germany and the Euro zone came in mixed today. French manufacturing and services sectors beat expectations and remain in expansionary territory. Meanwhile, German data was a bit softer than expected with the Manufacturing PMI printing at a fresh decade low while the Services PMI barely held in expansionary territory.
For the Euro, the Services PMI fell a tick lower than expectations to remain in expansion. The manufacturing PMI declined further into a contraction, printing a low not seen in seven years.
Brexit Optimism Fades, ECB is up Next
A delay in the UK’s exit from the EU appears inevitable at this point and has taken the wind out of the Sterling and Euro rallies. This has caused some position squaring with investors also looking to reduce exposure ahead of today’s ECB meeting.
The meeting will be the last one for ECB President Mario Draghi. Christine Lagarde will be taking over and will sit in today’s meeting.
While the last meeting was met with a volatile reaction in the currency markets as traders adjusted expectations, this one is not expected to. The ECB introduced further easing at their last meeting which many analysts believe has ‘tapped’ them out.
There has been some backlash from the decision, and Draghi and Lagarde will try and defend their position today. The meeting will give the markets a taste of Lagarde’s position on monetary policy. It will be important if she suggests the ECB could ease further considering the weak economic data as of late.
EUR/USD has eased lower as the US Dollar index (DXY) is bouncing from its 200-day moving average. The same indicator in the currency pair was not tested.
EURUSD 4-Hour Chart
A major area of support is seen at 1.1072 in the event of a further decline. This level acted as support in July and August and then later resistance in September. Further, a rising trendline from the October low intersects with the horizontal level to add a confluence.
To the upside, resistance from the 200-day moving average is near 1.1200 with further resistance from a horizontal level at 1.1217.
EUR/USD is paring some gains as Brexit is likely to be delayed past the October 31 deadline.
The ECB meeting should drive volatility to the exchange rate, but perhaps not as much as the last meeting.