EUR/USD Daily Forecast – Will Draghi Provide the Catalyst for a Reversal?

How EUR/USD has Reacted to Prior ECB Meetings

Although everyone in the financial industry is familiar with the phrase “past performance is not indicative of future results”, EUR/USD shows quite a consistent pattern in reacting to ECB meetings.

The above chart shows how many pips EUR/USD moved on days that the ECB met.  The measurement is from the daily open to close. It’s quite evident that the pair tends to decline more often than not.

Several central banks have recently eased monetary policy, or have at least communicated that they are open to doing so. I think Draghi will likely revise down inflation forecasts and to an extent that is a given. If he announces intentions to ease policy on the back of the recent weakness in economic data, I expect the Euro could fall under a lot of pressure.

Based on prior ECB meetings since the start of 2018, EUR/USD shows an average daily price movement of 63 pips. I can see the pair moving much more if Draghi surprises with easing measures.

Technical Analysis

Taking into consideration average movement, there’s not much potential for EUR/USD to climb back above yesterday’s high. That would reflect a roughly 86 pip rally from the open. Personally, I don’t see what kind of catalyst the ECB could present for that to happen.

In this context, there are two key levels that I will be watching to the upside. The first is 1.1260, and anyone trading EUR/USD this week will have this figure ingrained into their mind at this point. This level held the pair lower twice in May and is considered a line in the sand at the moment.

I do think, however, considering how widely the level is watched, it may have lost some of its importance.

In yesterday’s forecast, it was mentioned that there is still further significant resistance above the level. Specifically, the 100-day moving average and the 38.2% Fibonacci retracement as measured from this years high to low.

A retest of the Fibonacci retracement does not seem very probable to me, and so I’m focused on the 100-day moving average, currently at 1.1273.

Note also yesterday’s candle print in the above daily chart. It is quite a strong reversal pattern.

On a 4-hour chart, I see support for today at 1.1185, in the event of a turn lower as a result of the ECB. This level is only about 35 pips from today’s open. Unless Draghi surprises the markets with easing measures that are not expected, I think this level has potential to hold as the 100 and 200-period moving averages are converging near the level.

On an hourly chart, the 200-period moving average is also found near 1.1185. The chart does show upside resistance at 1.1260 as a fairly respected level, but again, I would not rule out a spike above it.

Bottom Line

• I’m favoring a downside move on the ECB meeting, although the markets will expect him to follow the recent dovish nature of other central banks which sets the bar a bit high.
• If there’s no major change at the meeting, and the pair rallies, I would look to short into yesterday’s highs. I consider upside resistance to be quite significant.
• I don’t think we break below 1.1185 on a negative reaction, unless there is a major deviation in what Draghi says versus what the market expects.