EURUSD Forecast: Monthly Opening Range on Radar Ahead of ECB Meeting

EUR/USD Rate Talking Points

EURUSD holds the monthly opening range ahead of the European Central Bank (ECB) meeting, but fresh updates from the Governing Council may produce headwinds for the Euro as the President Mario Draghi and Co. are expected to push monetary policy into uncharted territory.

EURUSD Forecast: Monthly Opening Range on Radar Ahead of ECB Meeting

EURUSD appears to be stuck in a narrow range as the ECB prepares for its quarterly meeting, and the central bank may unveil new measures to insulate the Euro area as the Governing Council struggles to achieve its one and only mandate for price stability.

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The ECB is anticipated to cut the Deposit Facility Rate by 10bp to -0.50% even though the central bank launches another round of Targeted Long-Term Refinance Operations (TLTRO), and President Draghi and Co. may continue to endorse a dovish forward guidance for monetary policy as “the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim.”

It remains to be seen if the ECB will reestablish its asset-purchase program as board member Sabine Lautenschlager insists that quantitative easing (QE) “should only be used if you have a deflation risk,” while Robert Holzmann, the new member on the Governing Council, warns that he is “skeptical about further expansion of the money supply.”

The comments suggest there’s a growing rift within the ECB as the central bank relies on non-standard tools to support the monetary union, but President Draghi may try to deliver a major stimulus package ahead of his departure at the end of October as the Governing Council “stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner.”

In turn, a slew of new measures may produce headwinds for the Euro, with EURUSD at risk of facing a more bearish fate over the remainder of the year as the ECB continues to push monetary policy into uncharted territory.

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EUR/USD Rate Daily Chart

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Source: Trading View

  • The broader outlook for EURUSD is becoming more bearish as the exchange rate clears the May-low (1.1107) following the Federal Reserve rate cut in July, with the 1.1100 (78.6% expansion) handle no longer offering support.
  • Will keep a close eye on the Relative Strength Index (RSI) as the oscillator continues to track the downward trend from June, but a break of trendline resistance may accompany a larger rebound in the exchange rate as the bearish momentum abates.
  • Nevertheless, the failed attempt to push above the 1.1100 (78.6% expansion) handle may continue to generate range-bound conditions, with a move below 1.1040 (61.8% expansion) bringing the Fibonacci overlap around 1.0950 (100% expansion) to 1.0980 (78.6% retracement) back on the radar.

For more in-depth analysis, check out the 3Q 2019 Forecast for Euro

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

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