Main Resistance Now for EUR/USD at 1.20 as ECB Meets

Chart created with TradingView

Basic Euro Forecast: Bearish

• European Central Financial institution chief economist Philip Lane, and different unnamed ECB officers, signaled clearly final week that the central financial institution doesn’t wish to see EUR/USD above 1.20.
• That focuses consideration on ECB President Christine Lagarde’s information convention after its rate of interest resolution this coming Thursday.
• Whereas it is going to nearly definitely depart its financial coverage unchanged, Lagarde is undoubtless to contradict her officers’ message, which means that 1.20 has turn out to be an enormous resistance degree for EUR/USD and that the pair’s doubtless course now could be decrease.

EUR/USD worth capped at 1.20

Final week was an vital one for the Euro and this week might be too as merchants watch for affirmation that the European Central Financial institution doesn’t wish to see the EUR/USD alternate charge above 1.20. So long as ECB President Christine Lagarde doesn’t contradict officers’ steerage this previous week, it means there’s now large resistance at 1.20, with any try by merchants to push the worth above it more likely to be met by fierce ECB opposition. In different phrases, from right here, EUR/USD weak spot is extra doubtless than additional power.

First up final week was Philip Lane, the central financial institution’s chief economist, who instructed a seminar that the Euro’s degree “does matter” – simply after EUR/USD hit a excessive of 1.2011, its strongest since Could 2018. His remark, not lengthy after Federal Reserve Chair Jay Powell dedicated the Fed to a extra stimulative coverage stance, instructed the ECB is ready to match the Fed because the Eurozone’s central financial institution faces a probable fall in inflation to -0.2% in August from +0.4% in July.

ECB ‘sources’ again Lane

Only a day later, The Monetary Instances reported that a number of members of the ECB’s Governing Council had instructed it that the Euro’s rise towards the US Dollar and plenty of different currencies dangers holding again the Eurozone’s financial restoration. “In the previous couple of weeks there was an appreciation of the Euro, which is all the time worrisome when you have got weak demand, particularly because the Euro space is essentially the most open economic system on the earth and unusually depending on international demand,” it reported one council member as saying.

This implies that, as one industrial financial institution put it, that the ECB has drawn a line within the sand at 1.20 and that EUR/USD will now doubtless consolidate under that degree and fairly probably fall again.

EUR/USD Worth Chart, 4-Hour Time Body (July 1 – September 3, 2020)

Chart by IG (You’ll be able to click on on it for a bigger picture)

Lagarde is bound to be requested about all this when she holds her information convention Thursday after the outcomes are launched of the Governing Council assembly, which can nearly definitely finish with all of the ECB’s financial settings left the place they’re presently – and it could be a significant shock if she didn’t again her group.

In the meantime, notice that net-long positions within the Euro are at a document excessive, in accordance with the US Commodity Futures Buying and selling Fee’s Commitments of Merchants report, and that implies any drop in EUR/USD may speed up sharply on lengthy liquidation.

Really helpful by Martin Essex, MSTA

Buying and selling Sentiment

Register for webinar

Be part of now

Webinar has ended

Week forward: German industrial manufacturing and commerce

In opposition to this backdrop, knowledge within the week forward will doubtless be ignored, and might be sparse anyway, with German industrial manufacturing Monday and commerce knowledge Tuesday the highlights.

— Written by Martin Essex, Analyst and Editor

Be at liberty to contact me on Twitter @MartinSEssex