EURUSD is trading within a 15-pip range so far in today’s Asian session as investors await Germany’s ruling on the legality of the ECB’s actions. The currency pair is currently down by 0.02%, trading 2 pips below its opening price at 1.0903.
Later today, Germany’s Constitutional Court will announce its decision on whether or not the ECB’s quantitative easing program. In March, the central bank announced that it would purchase 750 billion EUR of government bonds this year through the Pandemic Emergency Purchase Program (PEPP). A few Germany policymakers are worried because under this program, government bonds which do not have investment grade ratings (like those of Greece) are eligible for purchase. Consequently, it could make the ECB’s new bond purchasing program riskier than its predecessors.
Market participants generally think that the German court will not declare these actions by the ECB illegal under the country’s laws. However, it is widely expected that restrictions will be put in place. This could still be bearish for EURUSD because it would limit the central bank’s options to support the economy during the pandemic.
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EURUSD has retraced most of its gains. On the 4-hour chart, the currency pair can be seen trading at the 61.8% Fib level (when you draw the Fibonacci retracement tool from the low of April 30 to the high of May 1). If support at the 1.0900 handle holds, we could see EURUSD rally to its month-to-date highs at 1.1018. Should there be enough buyers to break that near-term resistance, we may even see the currency pair rally to its March 30 highs around 1.1130.
On the other hand, a close below today’s low at 1.0895 could mean that EURUSD may retest its previous trendline for support (from connecting the highs of March 30 and April 15). The next floor for the currency pair could be at 1.0820.