Reality check for the EURUSD bulls as the pair trades sharply lower after the HICP data. Yesterday, the EURUSD pair tripped some stops above 1.20 before being sent lower by traders scared about ECB intervention.
To be fair, the HICP data disappointed. The market expected 0.9% inflation on the core release (the one that excludes energy prices considered too volatile) and got 0.4%. That is far away from the ECB‘s declared 2% target, and warrants some kind of intervention at the next week’s press conference.
The problem for the Euro is that it is traded against other currencies too. During the pandemic, the Recovery Fund was viewed as a game-changer for European politics, and investors from around the world flock into buying European assets.
But the ECB will not tolerate such low inflation that threatens to break below the zero level. To be sure, inflation is difficult to influence and the ECB knows that. Coupled with a strong currency, it is even more difficult to maneuver.
Hence, the ECB has the power to talk the Euro down. Expect some verbal intervention in the days to come prior to the ECB press conference if the EURUSD rate does not correct some more.
EURUSD Technical Analysis
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Dow Jones futures are 0.25% lower at 25,434. The S&P 500 futures are 0.18% lower at 3,042, while Nasdaq futures are 0.07% lower at 9,966.
EURUSD Technical Analysis
The chances are that moving forward into the ECB meeting, the EURUSD will find only sellers on spikes. The current price action on the daily chart resembles a possible rising wedge, with the last swing higher at 1.20.
Aggressive traders may short with a stop at the highs and target 1.15 on a combination of strong NFP and dovish ECB. Bulls may want to wait for 50% retracement before going long, unless they feel they want to fight the ECB.
1.15 is likely to be key for the EURUSD moving forward into the U.S. election. Depending on what the ECB signals next week, we might get there sooner rather than later.
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EURUSD Price Forecast
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