ECB Stance Could Impact Euro
Forex Bits

ECB Stance Could Impact Euro

Over the last few years, we have seen some relatively steady trends in the Euro.  Against the US Dollar the direction has been mostly downward as markets brace for a changing interest rate policy at the US Federal Reserve.  At this stage, there are not many central banks that are broadly expected to start risking potential growth by raising rates.  So it is not entirely surprising that these were the dominant tends over the duration of the period.

So the real question for forex traders at this stage is whether or not we are likely to start seeing any changes in these trends.  The EUR/USD is still managing to hold above the closely watched psychological level at 1.10.  But while this is encouraging for the pair, there is also reason to believe that the fundamental side could be impacted negatively by bearish factors initiated by the ECB.

Dovish Beyond Expectations

As is generally the case, the forex environment is a game of expectations and we are now seeing many of these expectations being challenged by the ECB.  Recent policy statements suggest that the central bank is still much more concerned with the possibility of reduced growth numbers in the next few quarters.  This creates a more negative outlook for the Euro as long as we continue to see interest rate increases from the Federal Reserve.

For these reasons, it is likely that we will see some renewed trading opportunities in the Euro in the next few weeks.  From a technical perspective, there is double top resistance in the EUR/USD near the 1.12 mark and any further failures here could see prices deflate back below the 1.10 mark.  This is a price level that tends to get a good deal of attention if it is broken, so it would not be surprising to see an increase in overall trading activity if this turns out to be the case.

On the fundamental side, it will be important for forex traders to continue monitoring central bank commentary from the ECB.  At this stage, we are seeing more clarification coming from the Fed but we are likely to see something similar from the ECB as they look to explain their increasingly dovish outlook.  If this is seen, it could help stabilize the EUR/USD at these upper range levels but at this stage it is looking increasingly unlikely in the near term.  

By FiboGroup