Potential For a Range Break Ahead of ECB Meeting
EUR/USD is declining with momentum in early trading on Wednesday as the dollar is attempting to break to a one week high.
The US Dollar index (DXY), similar to EUR/USD, has been consolidating within a range for the past week. However, the index was last seen testing a critical resistance level that has contained rallies within the range.
A range break stands to signal a bullish breakout for the dollar, and a bearish directional bias for EUR/USD. However, with the European Central Bank meeting scheduled for Tuesday, the pair might struggle to make a substantial move in the session ahead.
The markets have fully priced in a 10 basis point cut for tomorrow’s meeting. Unless policymakers are more aggressive, EUR/USD stands to gain. The ECB has the option to introduce further QE, or at least announce it. Market participants will also be watching for any changes in forward guidance for the path of monetary policy.
In the session ahead, producer price index figures will be released in the early North American session. PPI in the United States is expected to come in unchanged in August after a 0.2% rise in the prior month.
EUR/USD has been trading in a range between 1.1020 and 1.1060 for a week. Although this range remains intact, there is strong downside pressure in the early day which hints of a bearish break.
If bulls are unable to defend range support, I expect the pair to continue lower with the next level of interest falling at 1.0979.
To the upside, critical resistance remains at 1.1060. The 100 moving average on a 4-hour chart comes in just ahead of the horizontal level to create a bit of a confluence.
- EUR/USD is threatening a downside range break.
- The ECB meeting on Thursday stands to have a strong impact on the exchange rate. This might keep price ranges narrow for the pair in the session ahead.
- A break of range support at 1.1020 puts the focus on support at 1.0979.
This article was originally posted on FX Empire
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