EUR/USD Daily Price Forecast – EUR/USD Drops Post Comment from Draghi on Interest Rate

The EURUSD pair dropped from 1.17 handle after ECB’s Draghi reiterated that interest rates will stay where they are through summer 2019. The sharp drop from 1.17436 to 1.1636 indicates the markets were likely expecting Draghi to up the ante on policy tightening in the wake of EU-US trade deal and may have been disappointed by Draghi’s warning that protectionism is a prominent uncertainty. The fall could also be associated with CNY’s decline. Whatever the reason, the EUR’s slide from 1.17436 to 1.1636 has shifted risk in favor of a downside break of the pennant pattern. Still, there are no signs of nervousness in the options market. For instance, the one-month 25 delta risk reversals (EUR1MRR) climbed to -0.575 yesterday from the previous day’s reading of -0.625, indicating a drop in demand (drop in implied volatility premium) for the cheap out-of-the-money EUR put options (bearish bets/Sell EUR). As of writing, risk reversals stand at -0.575. The options data calls for caution on the part of the aggressive EUR bears. That said, an above-forecast GDP reading (due today) could yield a downside break of pennant pattern, boosting demand for the EUR puts.

EURUSD Drops

The dollar steadied on Friday following a rally against its peers overnight, as investors awaited U.S. economic growth data, which could give a fresh catalyst for direction amid a wider focus on global monetary policy and bond yield direction. The dollar index, which measures the greenback’s strength against a basket of six major currencies, stood little changed at 94.757 with 0.03% decrease in value. It had risen 0.4 percent overnight to pull away from a two-week trough of 94.084 as the euro slid sharply after the European Central Bank kept to its planned timetable to move away from its accommodative monetary policy. While the euro’s downturn provided the dollar with a significant lift, the U.S. currency enjoyed support from other quarters as well. The 10-year U.S. Treasury note yield extended its overnight rise and touched a six-week high of 2.988% as traders braced for a potentially strong reading of U.S. gross domestic product (GDP) data, set for release later on Friday.

The U.S. economy is expected to have increased at a 4.1 percent annualized rate in the second quarter, following a 2.0 percent pace of growth in the first quarter. The single currency had sunk more than 0.7 percent on Thursday following the ECB’s policy meeting. Taking the wind out of euro bulls’ sails, the ECB said it would stay on course to end its 2.6 trillion euro stimulus programme this year and keep rates at a record low level through the summer of 2019. Expected support and resistance for the pair are at 1.16095, 1.15824, 1.15543 and 1.16740, 1.16965, 1.17090 respectively.