EUR/USD is currently finding support at the bottom of the rising channel on the daily time frame while stochastic is indicating deeply oversold forex signal conditions. If the support area holds this week, EUR/USD might make its way to the middle of the channel or the nearby resistance at 1.3750.
On the other hand, a strong downside break might mean further losses for the pair. The ECB is scheduled to make its rate statement this week and possibly announce further easing measures in order to combat weak inflation and the rising euro. A downgrade in euro zone CPI forecasts might lead to pricing in for further ECB stimulus, which might lead to a downside break even before the actual statement is made.
Shorting on a break of 1.3600 and aiming for the 1.3000 levels if the CPI comes in weak could yield a high return on risk with a 150-pip stop. On the other hand, the potential for disappointment and profit-taking with no ECB easing could lead to a bounce up to the top of the channel.
Forex Signal on EUR/USD
The odds favor a downside break for this pair as traders continue to position ahead of the CPI forecasts release and the ECB rate statement. However, there’s a chance of a strong bounce during the actual monetary policy statement if the central bank doesn’t ease policy as much as expected.
Negative deposit rates, a rate cut of 0.10% to 0.15%, and additional LTRO are all expected to take place. An actual rate cut could be the most bearish euro scenario while a small increase in LTRO could just lead to a quick selloff. At the end of the day though, the longer-term downtrend that started from the moment Draghi hinted that the central bank is looking at potential easing measures is likely to carry on.
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