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Euro Outlook: EUR/USD Faces Downside Risk Ahead of ECB


Key Talking Points:

  • EUR/USD consolidates below 1.18 as the daily chart shows little risk to upside moves
  • Thursday’s ECB meeting is not expected to remove doubts over economic recovery struggles

EUR/USD is trading at its lowest level in 15 weeks after a failed attempted rebound in yesterday’s session. The US Dollar has been able to keep its strength despite the turnaround in stocks which is proving to be a significant headwind for the pair going into the ECB rate decision tomorrow afternoon. Expectations are for everything to stay the same but traders will likely be looking out for any commentary from Lagarde about rising prices and the ongoing pandemic situation. The ECB has been one of the most bearish central banks in Europe and it is likely to remain like so for a while so I wouldn’t expect much upside surprise going into tomorrow’s meeting.

Source: Refinitiv

EUR/USD Levels

Last week EUR/USD had broken below 1.18 on 4 occasions so I think there was still some market conviction that the pair would attempt to rebound to 1.19 when the pair broke down below 1.18 again on Monday. But a series of lower higher and lows is painting a pretty clear picture that there is little upside risk in the short term, despite bulls trying to take over above 1.1775. If price continues to be skewed to the downside then there is an area of support up ahead (1.1738 – 1.1704) which served to contain the pullback seen back in March, staging then a rebound towards 1.2266, so this area will be key to watch as an indicator of market sentiment towards the pair. A break lower leaves the pair exposed to the 1.17 line, which has held so far since November 2020 after 5 months of range trading.

EUR/USD Daily chart

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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