Market Analysis

Euro currency increasingly well supported ahead of ECB policy decision

The euro currency is continuing to hold above the 1.1200 level against the U.S Dollar currency ahead of today’s much anticipated European Central Bank interest rate decision and monetary policy statement. The single currency touched seven-week trading high against the U.S Dollar on Wednesday due to speculation that the Federal Reserve may soon start to cut interest rates after the U.S ADP private-sector employment report came in much weaker than expected.

Today’s ECB policy meeting is one of the most highly-anticipated central bank events of the year so far, due to the European Central Bank releasing its latest growth projections and the expectation that ECB policymakers will give concrete details about the forthcoming Targeted Longer-Term Refinancing Operation. The TLTRO programme will essentially provide cheap long-term loans to Europe’s struggling financial institutions.

Expectations are also high that the ECB could revise growth expectations higher following the recent better than expected GDP data from the eurozone during the first fiscal quarter of this year. However, the ECB still has to contend with persistently weak inflation inside the eurozone and also continued weakness in the manufacturing sector inside core European economies such as Germany and France.

The Italian economy is also likely to feature heavily during the press conference with ECB President Mario Draghi, as he takes questions about the ongoing friction between the EU and Italy. Investors have become worried about the implication for Italy’s struggling financial institutions if Brussels goes ahead and imposes a record fine on Italy for breaching European Union budget rules.

Concerns over Italy have now expanded beyond the potential record fine from the EU, following the recent victory for Matteo Salvino’s Lega party in the European elections. Lega Party leader Salvini may further harden his stance towards the European Union as his position has become stronger, which may lead to a showdown with the EU over the coming months. This almost certainly increases expectations that we will see further turbulence in the Italian bond and stock markets this summer.


EUR/USD Daily Mountain Chart Source ActivTrader Platform

EUR/USD Daily Mountain Chart | Source: ActivTrader 


The EUR/USD has certainly become more interesting this week, particularly with the pair aiming for a short-term technical breakout above the 1.1300 level. The 1.1265 level is a major upside pivot, with the EUR/USD pair having a strong upward bias while trading above this key level. Key upside resistance is located at the 1.1300 and 1.1320 levels, with extended weekly resistance at the 1.1410 level. Any moves below the 1.1200 level and the EUR/USD pair may revisit the 1.1180 or 1.1165 support levels.


Written by Nathan Batchelor, External Analyst, ActivTrades

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