EUR/USD Price Forecast – EUR/USD Remains on Defensive Ahead of ECB Update

The EUR is on the defensive ahead of the ECB rate decision as many investors and analysts believe that there is no immediate necessity for the ECB to change guidance and hence the central bank is expected to retain its “extended period” wording in relation to the stock of asset purchases through the summer of 2019 while keeping rates on hold. The EUR/USD one-month 25 delta risk reversals fell to a six-week low of -1.1 earlier today, signaling a rise in bearish bets in global forex market in medium term outlook. The EUR/USD pair came under some intense selling pressure on Wednesday and tumbled to over two-month lows, weighed down by political worries and softer economic data as the Italian government refusing to back down on the 2019 deficit target, increasing the possibilities of a clash over EU’s fiscal rules which is now in the center of investors focus.

Italian Budget Updates Remain Main Focus of Investors

The shared currency was further weighed down by weaker than expected Euro-zone flash PMI prints as the composite PMI dropped to a 25-month low level of 52.7 in October. The selling pressure aggravated further on the back of resurgent US Dollar demand, which got an additional boost from safe-haven flows amid a rout on the Wall Street. A combination of negative forces dragged the pair below 1.14 handle and hit an intra-day low of 1.13791 yesterday the lowest level since August 17. However the common currency gained some ground in early Asian market hours and moved back above 1.14 handle but still remains well near yesterday’s lows indicating signs of defensive price action and the pair is expected to move range bound near this price level ahead of ECB update.

However, a calmer start for the US equity futures helped ease the bearish pressure and stage a modest rebound during the Asian session on Thursday. Investors also seemed to lighten their bearish bets ahead of the latest ECB monetary policy update. The European Central Bank is widely expected to stick to its plan for winding down the bond-buying program at the end of the year and leave interest rates unchanged at least until next summer. In the meantime, the release of the German Ifo Business Climate survey might provide some impetus but is more likely to be overshadowed by the key event risk. Later during the early North-American session, the US economic docket highlights the release of durable goods orders data for September, which along with pending home sales data might influence the USD price dynamics and help traders grab some short-term opportunities. Expected support and resistance for the pair are at 1.1379, 1.1366, 1.1300 and 1.1422, 1.1449, 1.1492 respectively.