The EUR/USD has turned back up after a strong bounce off 1.2200. We are looking for more upside to come if the USD continues to weaken. We are looking to enter on a pullback to 1.2263 with our upside target set at 1.2419 and a stop loss in place at 1.2150.
EUR/USD 240 min Chart - EUR/USD is Holding Support
European Central Bank Policy Meeting in Focus
The EUR/USD fell away early last week as the greenback finally started to find its feet. The rally was short-lived though, as US President Trump came out with a proposal to introduce tariffs on steel and aluminum.
That hurt the USD as there was a distinct feeling that a trade war might be looming. It was a strange move from Trump as it would seemingly be going against what a pro-business President would stand for.
The strong EUR/USD, will carry into this week as we have another major hurdle for the Euro to overcome - this month's European Central Bank Policy Meeting. While there is little chance of any change in rates, traders will once again be focused on any changes to the ongoing stimulus program.
We have recently seen a reduction in October last year, where asset purchases were halved. However, at the same time the program was to be continued until September 2018.
It seems to me that the ECB is getting nervous about the fact that they are the only buyer of Government bonds. Given the high prices of bonds and low yields there is very little incentive for anyone else to be buying. That means that rates will be forced higher at some time, by virtue of the fact that no one else will buy them at current levels.
That’s got to be a concern for Draghi and we will have to wait to hear from him at his press conference to get his thoughts on the issue.
Key for the Week - ECB President Mario Draghi
The last few European Central Bank Policy Meetings have been much hyped affairs. However, there has been little if anything to come from them. This meeting has the potential to go down the same path.
What matters to investors and traders is what the ECB President has to say after the announcement. Does he see rate hikes ahead? Will stimulus end ahead of schedule? Both have to happen in the Eurozone or another crisis looms as the Governments in Europe won’t be able to sell bonds.
Technical Analysis - The Key Levels
1.2200 was our major focus last week and it held up beautifully. However, we can also thank US President Trump for throwing a spanner in the works. Our attention now turns to 1.2350. If we are able to break above that level then we have a good chance of moving back towards the highs.
It’s really the USD that is driving things at the moment and we will know more after US markets open on Monday. Particularly surrounding Trump's tariffs and how the market is feeling about them since the weekend.
EUR/USD - Key Levels
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