- EUR/USD takes out decade-long descending trendline hurdle.
- ECB's Draghi expected to talk down Euro.
- Mnuchin's comments could limit Draghi's ability to influence Euro.
The EUR/USD rose to a fresh three-year high of 1.2416 in Asia, taking the year-to-date gains to 3.33 percent.
The currency pair now trades above the descending trendline drawn from July 2008 high and May 2011 high.
The 400-pip rally from the December close of 1.20 could be attributed to speculation that the ECB will begin unwinding the enormous stimulus program this year. Also, the US dollar is finding no love in 2018, despite the sharp rise in the treasury yields.
Further, the Trump team at Davos has backed weaker dollar. Treasury Secretary Steven Mnuchin endorsed the dollar’s decline as a benefit to the American economy. This led to a 100-pip jump in EUR/USD. Meanwhile, Commerce Secretary Wilbur Ross said the US would fight harder to protect its exporters.
Clearly, the odds are stacked in favor of further rally in EUR/USD above the monthly 200-MA of 1.2432. Hence, it is widely believed that ECB's Draghi may pour cold water on the view the bank is moving towards an interest rate hike and try to jawbone the Euro.
But the question is will Draghi succeed? Mnuchin's "weak dollar" comment and fears of a trade war between the US and China will likely ensure that Draghi-led dip in EUR/USD is short-lived.
The ECB announces its rate decision at 1245 GMT, followed by Draghi’s news conference at 1330 GMT.
EUR/USD Technical Levels
FXStreet Chief Analyst Valeria Bednarik writes, "the technical picture is bullish ahead of Asian opening, with the pair holding near the mentioned multi-year high, and despite extreme overbought readings and the upcoming risk event. The 4 hours chart shows that the price has moved well above a now bullish 20 SMA, while technical indicators have reached overbought territory before losing upward strength, anyway consolidating, far from signaling a possible correction ahead. Higher highs are likely for the upcoming sessions, with 1.2460 becoming a possible short-term target. Profit-taking ahead of ECB's meeting is not out of question for late Asia/early Europe.
Support levels: 1.2370 1.2325 1.2280
Resistance levels: 1.2425 1.2460 1.2500
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