EUR/USD - Bulls in control ahead of the ECB

Recent price action indicates the EUR could re-test the yearly highs above 1.25.
Focus on ECB's language on the ECB.

Omkar Godbole FXStreet Contributor

The EUR's move above the double top neckline of 1.2201 on Mar. 1 trapped bears on the wrong side of the market. In the subsequent days, the common currency extended gains and rose to a high of 1.2446 (yesterday) as fears of trade war saw investors ditch the greenback in favor of the currency backed by hefty current account surplus.

As of writing, the EUR/USD pair is holding just above 1.2402 - 61.8 percent Fibonacci retracement of Feb. 16 high - Mar. 1 low.

The one-month 25 delta risk reversals turned positive earlier this week, indicating the implied volatility premium for EUR calls is higher than the implied volatility premium for the EUR puts, i.e. the move from 1.2154 to 1.2446 has revived demand for the bullish bets (calls).

Further, the momentum studies - 5-day moving average (DMA), 10DMA, and 50DMA are on the rise, indicating a bullish setup. So, it appears the EUR is all set to re-test the yearly high of 1.2556 set on Feb. 16.

That said, the ECB language on QE could either accelerate or slow down the EUR's ascent towards 1.2556. Kathy Lien from BK Asset Management says, "the ECB is widely expected to leave monetary policy unchanged and the only question is how quickly they will start talking about unwinding Quantitative Easing and raising interest rates."

The December policy statement had said a review of policy language may be warranted in early 2018. So, if the language remains unchanged, the EUR could depreciate somewhat, however, investors would then start pricing-in a change in April. So, the drop will likely be short-lived.

EUR/USD Technical Levels

A move above 1.2446 (previous day's high) would allow a stronger rise towards 1.2538 (Jan. 25 high) and 1.2556 (Feb. 16 high). On the downside, failure to hold above 1.2385 (support on 1-hour chart) could yield a sell-off to 1.2355 (1-hour 100-MA) and 1.2328 (Mar. 6 low support on 1-hour chart).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bullish	Neutral	Expanding
1H	Bearish	Neutral	Low
4H		Neutral	Shrinking
1D	Bullish	Neutral	Low
1W	Bearish	Neutral	High
Updated Mar 8, 03:45 GMT

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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