EUR/USD: Busy day ahead with room to the downside

EUR/USD has been slipping amid deadlocked Brexit and US fiscal stimulus talks. The focus shifts to the European Central Bank (ECB), which is set to add stimulus, but may talk down the euro. Meanwhile, Thursday’s 4-hour chart is showing bears are gaining ground, FXStreet’s Analyst Yohay Elam briefs.

Key quotes

“After a long dinner and Brussels, European Commission President Ursula von der Leyen and UK Prime Minister Boris Johnson concluded that they are still ‘far apart.’ They have instructed their teams to negotiate with a new deadline in sight – Sunday night. The euro will likely shrug off developments unless a deal is announced on Thursday – highly unlikely.”

“US Treasury Secretary Steven Mnuchin said Democrats and Republicans agreed on 90% of the relief package – but are still at odds over liability clauses and state aid. Contrary to Brexit, there is no deadline and there seems to be more for compromise. Looking forward, there is room for some upside from bipartisan talks.”

“The ECB is forecast to add some €500 billion to the Pandemic Emergency Purchase Program (PEPP) which is mostly priced in. The bank would have to shock markets with a far larger expansion to send the common currency higher. A surprise may come from comments on the exchange rate. The ECB does not officially target the exchange rate, but it could hint that its recent rise may trigger a rate cut – that would already shock markets and send the euro down, but the chances remain slim at the moment.” 

“Euro/dollar may receive a boost from the US Food and Drugs Administration, which is set to approve the Pfizer/BioNTech coronavirus vaccine, following Canada’s and Britain’s footsteps.” 

“Euro/dollar has slipped below the uptrend support line that had accompanied it since early December. While the currency pair recaptured the 50 Simple Moving Average, it has yet to top the broken trendline. Momentum remains to the downside.” 

“Support awaits at 1.2080, which was a swing low on Monday. It is followed by Wednesday’s trough at 1.2060. Some resistance is at the daily high of 1.21, followed by 1.2045, which capped EUR/USD on Wednesday.”