The rate decision by the European Central Bank is less than 72 hours away, and it seems that markets are beginning to price in some dovish move by Draghi and his colleagues.
EUR/USD, which made a false break to the upside last week, is continuing the downturn. After hovering above the shoulder line of 1.1340, the pair dropped to lower ground, still holding above support at 1.1290. Are further drops ahead or is the market getting ahead of itself?
The low so far is 1.1305 and the pair is stabilizing on lower ground. 1.1290 is support but the pair feels comfortable in a more narrow range.
Towards the ECB decision, we have lots of data from the United States, especially around housing. Draghi and his colleagues are expected to leave policy unchanged but leave the door open for more in December, when they’ll have new forecasts at hand.
By then, the ECB might also know if the Fed is about to raise rates or not. A rate hike by Yellen can push EUR/USD lower, and that will certainly trigger a sigh of relief in Frankfurt. Each time EUR/USD rises, we hear something to push it down from the ECB.
But talk can only do so much. Draghi may hint now but come December, he may be forced to act.
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