The US Dollar extended its recent consolidative price-action and weakened slightly against both the British Pound and the shared currency on Wednesday as we now head towards, arguably this week's top event risk, ECB monetary policy meeting. ECB is scheduled to announce its decision later during European session. A 'No' vote on the Italian Referendum over the weekend has heightened the need for the central bank to extend or even expand its EUR 80b a month asset purchase program, beyond its scheduled end in March. Markets are currently anticipating a six month extension to the program and anything above that would turn the Euro vulnerable to extend its recent slide.
Market participants will also focus on the subsequent press-conference and updated economic projections. Any hints over a possible tapering of the ECB's asset purchase program would force investors to cover bearish EUR/USD bets and trigger a knee-jerk reaction. The spillover effect might infuse a fresh bout of volatility and eventually provide some impetus for the GBP/USD major, which struggled to extend its recent recovery move, to two-month highs, and faced rejection just below 100-day SMA resistance on Tuesday. The pair subsequent dropped below 1.2600 handle on Wednesday but managed to bounce-off weekly lows and is currently hovering around mid-1.2600s.
On economic data front, US economic docket features the release of usual weekly jobless claims later during NA trading session, but is likely to be overshadowed by ECB-led volatility in the FX market.
Technical outlook
GBP/USD
The pair rebounded from an intermediate support near 1.2570 (Dec. 2 low) but has been confined within previous day’s trading range. Hence it would be prudent to wait for momentum above 1.2680 immediate resistance (yesterday’s peak) above which the pair is likely to surpass 1.2700 handle (50% Fibonacci retracement level of 1.3439-1.1980 downfall) and make a fresh attempt towards testing 100-day SMA resistance near 1.2780 region. A follow through buying interest has the potential to continue boosting the pair further, beyond 1.2800 round figure mark, towards an important confluence resistance near 1.2865-70 area, comprising of a short-term ascending trend-channel resistance and 61.8% Fibonacci retracement level.
Alternatively, sustained weakness back below 1.2600 round figure mark might now drag the pair below 1.2570 intermediate support towards 38.2% Fibonacci retracement level support near 1.2535 region. A convincing break below 1.2535 support would turn the pair vulnerable to extend its slide further towards testing the ascending trend-channel support near 1.2430-25 region, also coinciding with 50-day SMA support.
EUR/USD
Currently hovering around 3-week highs, immediate upside resistance is pegged near 1.0800 handle marking 38.2% Fibonacci retracement levels. Strong bullish momentum above this immediate hurdle is likely to trigger a sharp short-covering rally initially towards 50-day SMA resistance near 1.0885 region en-route 50% Fibonacci retracement level resistance near 1.0900 round figure mark.
On the flip side, 1.0720 level now seems to act as immediate support, which if broken might now drag the pair back below 23.6% Fibonacci retracement level support near 1.0700-1.0690 region, towards 1.0650 intermediate support before the pair eventually breaks below 1.0600 handle and head towards testing its next major support near 1.0550 area.
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