Euro in great risk today from ECB's decision while Dollar returns to strength

Finally the Dollar is back in the driver’s seat over the past 24 hours as the US currency has returned in force to claim significant gains against the rest of the major currencies. The Dollar had seen a couple of days of weakness across the board ahead of this month’s NFP report scheduled for release this Friday. As we explained in our previous notes this was down to the fact that traders had already loader their pro-Dollar positions so a correction was natural.

However now that we’re moving closer to the event that has the potential to seal the deal for the Fed regarding their tightening decision traders are again pilling on the Dollar for more reasons that one actually. Apart from the NFP report on Friday, today the focus will be on the Euro and the ECB Rate Decision and press conference that will follow it and the Dollar has the potential to benefit from it. ECB President Mario Draghi is thought to be ready to take bold action to revive the progress in the Eurozone with inflation remaining stubbornly low.

As such today we should expect increased volatility in the Euro and depending on how bold the actions from the ECB turn out to be we could see a hefty decline on the Single currency. There is a host of different options for Mario Draghi to try to spark some progress in the Euro area and it will be interesting to see how aggressive he will be. Traders should be braced for really strong moves in the Euro today that could easily end the day 100-200 pips lower.

During the past 24 hours the price action in the majors has been interesting, the Euro remained above the 1.0550 support even though it printed a fresh low. Bullish comments from Fed’s Yellen boosted the Dollar yesterday and resulted in the Euro remaining under pressure and as we explained above the currency will be in significant risk today with the bias being clearly bearish. Should our expectations are met and Draghi eases further then the Euro has the 1.0500 area as its first target with an extension to reach as low as 1.0450 today.

The Cable was really weak yesterday as well after the release of the Construction PMI levels and on the back of the Dollar’s strength. The UK currency lost significant ground and declined from the 1.5100 area to trade just above the 1.4900 level. Today with the release of the Services PMI report pending and the Dollar on the rise again the Cable could be vulnerable to fresh losses and the targets to the downside lie around the 1.4850 and 1.4800 levels.