The euro retreated from a 7-week high on Wednesday, as markets optimism was tempered by a softer-than-expected ADP reading but the optimism surrounding the ‘fiscal cliff’ has been boosted after members of the Republican Party have joined a pledge to explore all options regarding taxes and entitlement programs.
Reports in Europe and America have sparked a bearish decline in the EURUSD, which has fallen by almost 70 pips on the session and remains trading below the 1.3100 psychological figure. "The day’s sentiment has weighed on EURUSD in the short term, shifting the technical outlook a bit," comments Fxstreet.com analyst Richard Lee. "The short November rally may be coming to an end as the major currency has now formed a doji candlestick just below resistance at 1.3150."
This level "could act as a major incentive for Euro bears to get short in the near term," adds Lee. "Look for support at the 1.3045 December 4th low to be tested. A close via the level will likely spur further declines lower."
According to Valeria Bednari, FXstreet.com chief analyst, there is a possible downside correction as far as the pair remains below 1.3130. "Quoting below 1.3100 and breaking the base of the ascendant channel coming from 1.2879, the hourly chart shows an increasing bearish momentum that suggests bearish movement is underway. Immediate support comes at 1.3070, and once below, the slide may accelerate towards 1.3020/30 area. With Central Banks and NFP in the upcoming days, range should remain limited today and falls below 1.3000 seem unlikely."
As for Central Banks meetings, and despite recent hints that the ECB is considering carrying out another rate cut and signs of the Eurozone entering a double-dip recession, "the central bank is generally not expected to take action in December" according to the recent Central Banks Forecast published by FXstreet.com Fundamental Manager Katarzyna Komorowska. In the same line, "he Bank of England will most probably remain on hold as well."
So, what market should expect from the ECB? Kathy Lien, BK's analyst, believes that "the ECB has very little reason to adjust their negative outlook particularly since austerity measures will limit recoveries in the New Year."
Since Kathy Lien doesn't expect Draghi to say anything new, "this month's monetary policy announcement and accompanying press conference may have a limited impact on the EUR/USD."