EUR/USD nears key hurdle, eyes ECB

EUR/USD is fast closing on the 200-week simple moving average (SMA) hurdle at 1.1333 at press time. The bulls have failed to keep gains above the long-term SMA in five out of the past six weeks. 

The pair is reporting a 0.30% gain as the uptick in the US stock futures is keeping the US dollar under pressure. As of writing, the futures on the S&P 500 are up nearly 0.5%, meaning the US equities are likely to extend Friday's rally. 

Focus on the ECB

The data calendar is empty on Monday. As such, the pair is likely to track the broader market sentiment, which is currently looking risk-on, as noted earlier. 

The main event of the week, however, is the European Central Bank's (ECB) rate decision, due on Thursday. "We expect a repetition of recent comments from various governing council members, thereby striking a cautiously optimistic tone compared to the June projections. We also expect they may decide not to use the EUR 1,350 billion pandemic emergency purchase program (PEPP) envelope in full. No new initiatives are expected next week," analysts at Danske Bank wrote in their research note titled "ECB Research - Steady course, but cautiously optimistic".

That said, Danske Bank analysts believe markets may not be prepared for a "less dovish" outcome. Currently, markets are pricing 7 basis points of rate cuts at the trough by the end of next year.

Moreover, the true extent of the damage caused by the coronavirus outbreak in the second quarter only becomes clear towards the end of the month with the first estimates for GDP growth. In addition, the Eurozone is witnessing a rebound in economic activity, driven by the lifting of the lockdown measures. 

Hence, the ECB is unlikely to ramp up stimulus this week or hint at additional easing and may sound less dovish, in which case, the shared currency would pick up a strong bid. "We remain constructive and expect the broad USD to decline over the coming months. In turn, our 3M forecast is 1.15," Danske Bank analysts noted.

Technical levels