EUR/USD flat, but not for long, ECB Thursday could shake it up

  • EUR/USD is the one to watch this Thursday, hawks circle over Frankfurt.
  • US dollar testing critical daily dynamic resistance, bulls on guard.

At the time of writing, EUR/USD is flat at the start of Sydney's trade, clinging to near 1.1850 and between a low of 1.1840 and a high of 1.1846.

The week is about to pick up with the central; banks taking the limelight at the start of a new quarter. 

One down, two to go

The Reserve Bank of Australia met yesterday, the Bank of Canada meets today and the European Central bank, perhaps the most highly anticipated of them all, meets on Thursday. 

We also have speeches from the Federal Reserve members, the Bank of England and also RBA officials.

Meanwhile, the RBA's decision not to walk back its timeline for tapering yesterday was met with volatility that settled down into a sell-off in the Australian dollar. 

Due to the board members concerns for the Delta variant spreading and subsequent lockdown extensions, the RBA QE purchases are now running at A$4bn/week from this month onwards compared to the earlier rate at A$5bn/week.

The RBA acknowledged the poorer-than-expected economic outlook and decided to hold the reduced QE pace of A$4bn/week until at least mid-February next year, instead of their earlier November 2021 review. 

The Bank of Canada is not expected to change policy or forward guidance although the second quarter Gross Domestic Product report does introduce a wildcard to the meeting. However, it is just one piece of positive data amongst a myriad of Coronavirus Delta risks and a weaker outlook.

This then brings the attention to the ECB. 

All eyes on ECB, how hawkish can you go?

EUR/USD: ''The first P in PEPP stands for Pandemic, not Permanent''

ECB is seen debating a cut in stimulus at its meeting on Thursday.

Without anything in the way of a public pushback from the doves at the ECB, the centrist French central bank chief Francois Villeroy de Galhau had argued for such a move to be included on the agenda this week. 

“The first P in PEPP stands for pandemic, not permanent, and for a good reason,”

Bundesbank President Jens Weidmann said last week.

There are expectations that the Governing Council will try to keep any tapering speculation at bay.

The euro has been fuelled of late by hawkish anticipations in markets.

However, the single currency could give up some of the hawkish expectations priced in should the ECB still come with a very cautious stance.

This might also be reflected in broadly unchanged inflation forecasts for 2022 and 2023.

As it stands, implied volatility in the options market is not pricing in anything much higher than normal around the meeting. The break-even on a straddle (which is a bet on higher volatility) on Thursday is currently 27 pips.

Meanwhile, analysts are expecting purchases under the ECB's Pandemic Emergency Purchase Programme (PEPP) to drop possibly as low as 60 billion euros a month from the current 80 billion, which would be considered a de-facto taper. 

EUR/USD technical analysis

The price has dropped to the 38.2% ratio and could be on the verge of a deeper correction to the 61.8% that meets the prior highs. 

When compared to the DXY, the bias could be confirmed if the bulls stay above the dynamic resistance and the 61.8% ratio:

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD drops below 1.1300 for the first time in two weeks

EUR/USD remains under bearish pressure in the American session on Monday and trades at its lowest level in two weeks slightly below 1.1300. US Markit Manufacturing and Services PMIs missed market expectations by a wide margin in early January. The S&P 500 Index is down nearly 2% after the opening bell.


GBP/USD extends daily slide toward 1.3450

GBP/USD continues to stretch lower toward mid-1.3400s on Monday as the mood continues to sour. Wall Street's main indexes are down between 1.7% and 2.1% after the disappointing PMI data from the US.


Gold declines toward $1,830 despite falling US bond yields

Gold climbed above $1,840 during the European trading hours but erased its daily gains to turn flat on the day at around $1,830. The benchmark 10-year US T-bond yield is down more than 2% on Monday as safe-haven flows continue to dominate the financial markets. 

Gold News

Crypto carnage continues to unfold

Bitcoin price has witnessed a massive crash over the past week, undoing the gains seen since July 25. Ethereum, Ripple and other altcoins have followed suit, experiencing an even worse crash. 

Read more

Nvidia extends losses after Bitcoin’s overnight flash crash

NVDA investors are getting used to seeing the colour red after a year in 2021 when all they saw was green. On Friday, shares of NVDA fell by 3.21% and closed the final trading day of the week at $223.74.

Read more