EUR/USD Forecast: Euro set to fall? ECB expectations may be overconfident


  • EUR/USD has been advancing as markets expect the ECB to convey an optimistic message.
  • Apart from the bank's decision, US jobless claims and coronavirus developments are eyed.
  • Thursday's four-hour chart is pointing to a fierce battle between bulls and bears. 

Confidence in the recovery or coronavirus fears? That is the main question that investors are asking ahead of the European Central Bank's meeting. Wednesday's report that the ECB will express optimism about the recovery lifted the common currency, but nothing can be taken for granted. 

Christine Lagarde, President of the European Central Bank, will present new economic forecasts. While economies have been coping better than expected with the impact of COVID-19, the damage is significant, and rising cases in the old continent remain worrying.

Are markets pricing optimism and set for a disappointment? 

Lagarde will likely be asked about the exchange rate – after her Chief Economist Philip Lane said he is "watching it." Comments about FX are uncommon and tend to rock currencies even if the central bank does not plan a direct intervention. 

See:

Broader markets are more optimistic than earlier this week, recovering from the blow dealt by the halt of AstraZeneca's Phase 3 coronavirus trial. The British firm paused the wide experiment after a patient fell ill.

After the initial fall in stocks and bounce in the safe-haven dollar, the trend reversed. Investors are encouraged by hopes that the trial will resume next week – and progress made by other efforts. The EU secured millions of immunization doses from Pfizer, which is also in advanced tests of its vaccine. 

President Donald Trump has been heavily criticized for downplaying the severity of COVID-19 earlier this year. The revelation by renowned journalist Bob Woodward was seized by challenger Joe Biden, who is leading Trump in the polls. 

Contrary to coronavirus and race relations, the president receives better marks on handling the economy. The recent upbeat Non-Farm Payrolls boosted the dollar – but may also reduce Republicans' sense of urgency for providing more relief. Update on America's labor market is due out on Thursday, weekly jobless claims.

See US Initial Jobless Claims Preview: Slowly but surely the economy improves

The Brexit drama would have a hard time competing for influence with the ECB and US developments. However, while the pound is the main mover, EUR/USD could also shake in response to an emergency meeting held by EU and UK high-level negotiators on Thursday.

Brussels is considering pressing charges against London after the British government released a draft bill that violates the Withdrawal Agreement signed last year. 

See 2020 Elections: Biden widens gap against Trump, why that may trigger a market bounce

Overall, the ECB is set to rock the boat, with other factors also of interest. 

EUR/USD Technical Analysis

Euro/dollar has recaptured the uptrend support line, a bullish sign. On the other hand, the currency pair failed to overcome the 200 Simple Moving Average on the four-hour chart. Momentum has all but disappeared and the Relative Strength Index is stable. 

All in all, the picture is balanced and awaiting the ECB.

Some resistance awaits at 1.1835, which capped EUR/USD in recent days. It is followed by 1.1880, a cap from last week. The next levels to watch are 1.1885 and 1.1925. 

Support awaits at 1.1780, a cushion from last week, followed by 1.1750, a double-bottom. The next levels to watch are 1.17 and 1.1625.

 

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