Euro Bearish as ECB Officials Are Set to Reveal New Monetary Policy
The US Dollar ended a bullish week, boosted by much better than anticipated Retail Sales data: the Core indicator, which excludes automobile sales from the calculation, posted a 1.3% change while the forecast was 0.4%. The “vanilla” version also showed a reading above expectations: 0.6% change versus the forecast -0.4%.
The Euro remains on a downward spiral, affected by the ECB raising the inflation target to 2.0% and acknowledging that it may overshoot it. ECB President Lagarde mentioned that the July 22 meeting will have “some interesting variations and changes” and added that “given the persistence that we need to demonstrate to deliver on our commitment, forward guidance will certainly be revisited.”
If this dovish attitude will be confirmed by President Lagarde at this week’s press conference, the EUR/USD is likely to continue to show weakness, although part of this is already priced into the market. The question remains how much was digested by investors already and what those “interesting variations and changes” really are.
Key Events for the Week Ahead
The US Dollar has a quiet week ahead, with no major announcements on the schedule, thus the Euro will be in the spotlight. The main event is the ECB Monetary Policy Statement, scheduled for Thursday, July 22 at 11:45 am GMT; this is the main tool used by the ECB to communicate with investors about monetary policy, and considering President Lagarde’s latest comments, we are probably set for a high-volatility event.
Soon after the Statement, at 12:30 pm GMT, the usual press conference takes place and it will be another opportunity for ECB’s Lagarde to unveil how the new monetary policy will affect the single currency going forward.
Even after the ECB Meeting, traders should still be on the lookout for some Euro data, namely the German Flash Manufacturing and Services PMIs, scheduled Friday, July 23 at 7:30 am GMT. The Manufacturing PMI is expected to decrease from 65.1 to 64.2, while the Services PMI is predicted to increase from the previous 57.5 to 59.4. These are leading indicators of economic health, thus higher numbers are beneficial for the Euro.
Technical Outlook – EUR/USD
The pair is currently trading right on the support level at 1.1780 and as we can see on the Daily chart below, this level was tested three times in the recent period. This increases the probability of a bounce-or-break scenario and given the ECB cluster of events scheduled later in the week, we will most likely see a strong move.
Depending on how dovish the ECB stance will be, and how much of it is already priced into the market, the pair may break 1.1780 and head into the more important support at 1.1700. On the other hand, if the ECB Meeting will offer any hawkish surprises, the pair will climb towards the first barrier at 1.1880.