ECB to Be Determinable for EUR/USD Direction

Over the last days, the euro is under pressure ahead of the last ECB policy meeting for 2016. Following Italy’s “no” vote on the constitutional referendum, the EUR/USD pair plunged at the 20-month low near 1.0500 and bounced off towards a fresh 2-week high slightly below 1.0800 where the pair is finding strong resistance. Since Monday, the bulls and the bears are in a battle over there, while the pair looks out of decisive steam. ECB meeting starts today and may be the push the pair needs to determine its direction.

What is the Market Expecting from ECB today?

The central bank is widely expected to keep both its interest and deposit rates unchanged at 0.0% and -0.4% respectively, while it is also expected to review its bond-buying program, as policymakers believe it is critical for the recovery of the euro area. The current quantitative easing program is due to end by March 2017 and the market is widely expected ECB to extend it but investors are divided whether should expect ECB to decrease the monthly purchase amount, also known as tapering.

ECB President Mario Draghi is expected to comment on the improvement we have seen in the Euro area since the last meeting, however, traders will closely watch the press conference to learn the effect of the Italian referendum result to the Euro area, and the significance of the ongoing U.K. Supreme Court Hearings for Brexit. In addition, investors will expect to Mr. Draghi to enlighten up ECB’s plans in order to recover and retain financial stability in the Euro area.

Data Improved Since the Last ECB Meeting

The asset purchase program may haven’t led to Euro area to ECB’s up to 2% inflation target yet, although we have seen a significant and solid increase over the last months. In November, the consumer price index, on an annual basis reached the highest level since April 2014. Moreover, thefinal GDP for the first quarter surprised positively this week, as it revealed that Eurozone’s economic growth beat market expectations and advanced 1.7% versus the previous estimates of 1.6%. Not far behind, it’s remarkable that unemployment rate fell to the lowest level has been more than six years ago, at 9.8%.

What We Expect

We wouldn’t expect ECB to change rates either, though, an alternation to the ECB bond-buying program, which is highly likely, will have a direct effect on the euro. A possible extension of the QE program will have a stimulating effect to the euro. However, we wouldn’t be surprised if the central bank reduces the monthly amount of purchases as an intermediate step before it ends it completely.

EUR/USD – Technical Analysis

The world’s most traded currency surged almost 1% during this week ahead of European Central Bank monetary policy and recorded a fresh two-week high at 1.0800 following the bounce off the previous eight-month low at 1.0505. However, the EUR/USD pair failed to broke the trading range in the weekly timeframe which is holding over the last nine months within 1.1620 upper boundary and 1.0505 lower boundary.

Going to the daily chart, the price is approaching the 1.0800 psychological level and if the price surpasses the latter level, it will be exposed to 1.0850 handle or evenmore to the 1.0935 strong barrier. Otherwise, if the ECB policy meeting fails to boost the pair and push it lower, it may fell below the 1.0700 barrier. Technical indicators are endorsing the bullish thought as both are rising near its mid-levels.

On the 4-hour chart, the price seems to have a strong obstacle for further upside movement as the 1.0800 barrier overlaps with the 200-SMA. Alternatively, the 50-SMA had a bullish crossover with the 100-SMA. Probably the pair awaits the ECB meeting later in the day, as it is moving with some weak momentum the last hours. Also, technical indicators are flattening in the positive path.