This week’s key fundamental factor for the euro will be the European Central Bank’s (ECB) monetary policy decision and statement on Thursday (1/22).
According to bloomberg.com, in this zero to negative inflation environment, the ECB is expected to announce a €550 billion ($635 billion) bond-purchase program. Mario Draghi is expected to go big, and the market has continued to price in a weaker euro as the QE draws near.
Last week, the EUR/USD fell below 1.15 to a low of 1.1460 before a pullback. This week we are looking at a pair that has been plunging and might start getting choppy now that the highly anticipated QE announcement is about just ahead. We should limit both the bullish outlook and the bearish outlook ahead of the ECB meeting, but with favor to the bearish one.
Key Levels an Outlooks Before and After ECB risk:
The 4H chart shows a bullish attempt that has the first resistance around 1.1650, the 1/16 resistance pivot. Now, if price retreats from 1.1650, we should first limit the bearish outlook to 1.1460, but if price does not fall back below 1.1540, there might still be some short-term bullish correction.
The next key resistance will be around 1.1750. There is a previous support pivot here that might turn into resistance. It is also reinforced by a couple of falling trendlines as well as the 50-period SMA in the 4H chart. We should also monitor the 4H RSI reading and anticipate sellers when if approaches 60.
Also, in the 1H chart, look for the RSI reading to be overbought (above 70). You can that the 200-hour SMA resides around the noted 1.1750 resistance area.
The market should hold EUR/USD below 1.1750 before the ECB meeting, but might not be able to push further below 1.1460. Now, after the ECB announcement, the euro might actually start to stabilize.
If EUR/USD pokes above the 1.1760 area, it can rally towards the next key resistance around 1.1885, a previous support/resistance pivot area and where the 100-period SMA resides.This bullish scenario is likely if QE is not as big as expected.
However, if after the QE announcement, the EUR/USD still remains below 1.1760, look for the 1.1460 low to be tested, with risk of breaking lower.
What if ECB Holds? With all this built up and such certainty of QE’s arrival, a decision to postpone pulling the trigger this week can lead some major, bullish repricing of the EUR/USD that can see it come back to test the air above 1.20.
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