EUR/USD Price Forecast – EUR/USD Trades Range Bound Ahead of ECB Draghi’s SpeechThe pair trades dovish ahead of Draghi’s speech in which investors are expected to focus on details of the Eurozone economy, interest rates and Italy.
The common currency is facing mounting pressure from multiple fronts such as domestic political woes and poor economic data which combined with resurgence in demand for US Greenback in broad market are seeing the EURUSD pair take on bearish price action. The common currency was pressured on Friday after weaker German and EZ PMI data and fell sharply from 1.14 handle to 1.1345 as trading session closed for the week indicating possibility of end to recent bull momentum in EURO’s favor with price closing well below 20-day SMA. The pair continued to be pressured by above mentioned factors as trading session started for the week today and hit a 10-day low of 1.1326 in early Asian market hours which supports the theory that Friday’s drop represents end of EURO’s recent recovery rally.
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The EURUSD pair has since maintained a range bound price action near weekly lows and is currently trading at 1.1345 up by 0.08% on the day. Friday’s losses, however, could be erased if the spread between the Italian 10-year government bond yield and its US counterpart continues to narrow. Last week saw European Commission initiate excess deficit procedures against Italy after the nation refused to substantially alter its budget proposals. The bond yield spread, still, eased to 307 basis points on Friday – down 20 basis points from last high of 327 bps reached last Tuesday. Investors continue to focus on Italian budget crisis as headlines over weekend suggest possibility for minor concessions to budget plans. Meanwhile the US Greenback continues to gain positive price action over expectations of holiday sales to boost equities.
The common currency may also pick up a bid if ECB’s Draghi while speaking in the European Parliament downplays the recent slowdown in the German economy and risks arising out of the Italian budget crisis. The gains, however, could be moderate as the central bank President is also expected to reiterate that rates would remain low for some time after the asset purchases are complete. On release front today, US calendar doesn’t see any major releases that could impact market momentum but European markets see a speech from ECB President Draghi, German Ifo business climate, German business expectations and current assessment data and also speech from ECB’s Praet, Coeure & Nowotny. Expected support and resistance for the pair are at 1.1336, 1.1326, 1.1300 and 1.1371, 1.1402, 1.1432 respectively.