EUR/USD Forecast: ECB delivers as expected, hawkish message limits decline

EUR/USD Current price: 1.0881

• The European Central Bank trimmed the main three interest rates by 25 bps each.
• The United States reported unemployment claims rose in the last week of May.
• EUR/USD keeps trading within familiar levels and lacks directional strength.

The EUR/USD pair traded with a soft tone, yet within familiar levels throughout the first half of Thursday, as market players awaited the European Central Bank (ECB) monetary policy announcement, and minor United States (US) employment data ahead of the release of the Nonfarm Payrolls (NFP) report on Friday.

The ECB delivered as expected and trimmed the three main rates by 25 basis points (bps) each, with the interest rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility coming down to 4.25%, 4.5% and 3.75%, respectively. The accompanying statement was mainly hawkish, as policymakers announced they would prefer to keep policy rates sufficiently restrictive for as long as necessary and that they would continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of the restriction.

The announcement had a limited impact on EUR/USD, which ticked marginally higher. The pair further advanced with the release of US Weekly Unemployment Claims, which rose more than anticipated in the week ended May 31 to 229K vs. the expected 220K. EUR/USD, however, was unable to conquer the 1.0900 threshold.

 Ahead of Wall Street’s opening, stock markets trade marginally higher. ECB President Christine Lagarde kicked off the press conference, which may introduce additional noise to markets.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair has shown little progress. It trimmed most of the initial gains and trades in the 1.0870 price zone. The daily chart offers a neutral-to-bullish stance as EUR/USD develops above all its moving averages, with the 20 Simple Moving Average (SMA) advancing above the longer ones. Technical indicators, in the meantime, remain directionless, although the Relative Strength Index (RSI) indicator aims marginally higher at around 58, skewing the risk marginally to the upside.

In the near term, and according to the 4-hour chart, EUR/USD is battling to overcome a mildly bullish 20 SMA while holding above bullish 100 and 200 SMA. Technical indicators, however, failed to provide directional clues. The Momentum indicator lost directional strength within negative levels, while the RSI indicator heads nowhere within neutral levels. A clear break through 1.0910 could anticipate a near-term bullish extension, while bears can take control if the pair breaks through the 1.0820 support level.

Support levels: 1.0850 1.0820 1.0780  

Resistance levels: 1.0910 1.0960 1.1000