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EUR/USD Eyes March-Low, EUR/AUD Retains Bullish Series Ahead of ECB

EUR/USD Eyes March-Low, EUR/AUD Retains Bullish Series Ahead of ECB

David Song, Strategist

EUR/USD struggles to hold its ground ahead of the European Central Bank (ECB) interest rate decision, with recent price action highlighting the risk for a further decline, while the rebound in EUR/AUD appears to be stalling ahead of the 2018-high (1.6192).

The President Mario Draghi and Co. may merely attempt to buy more time as ‘measures of underlying inflation remain subdued and have yet to show convincing signs of a sustained upward trend,’and more of the same from the Governing Council may do little to curb the recent decline in EUR/USD as the central bank continues to expand its balance sheet. As a result, the Euro may exhibit a more bearish behavior ahead of the second-half of the year as market participants push out bets for a rate-hike.

However, a material shift in the forward-guidance for monetary policy may heighten the appeal of the single-currency as the ECB pledges to conclude its quantitative easing (QE) program in September, and a more detailed exit strategy may trigger a bullish reaction in the single-currency as it boosts bets for higher borrowing-costs in the euro-area. Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Daily Chart

EURUSD Daily Chart

EUR/USD appears to be on track to test the March-low (1.2155) as it extends the series of lower highs & lows from the previous week, while the Relative Strength Index (RSI) snaps the bullish formation carried over from late last year. A break/close below the 1.2130 (50% retracement) region raises the risk for a move back towards 1.1960 (38.2% retracement) to 1.1970 (23.% expansion), with the net downside region of interest coming in around 1.1810 (61.8% retracement).

EUR/AUD Daily Chart

EURAUD Daily Chart

EUR/AUD has staged a rebound following the string of failed attempts to close below the 1.5880 (78.6% expansion) region, and the pair appears to be making a run at the 2018-high (1.6192) as it extends the bullish sequence from earlier this week.

However, the broader outlook remains capped by the 1.6230 (100% expansion) region, which sits just below the 2016-high (1.6252), and the lack of momentum to clear the topside hurdles may spark a larger correction in EUR/AUD as the RSI appears to be flatten out ahead of overbought territory. Need a break/close below 1.5880 (78.6% expansion) to open up the downside targets, with the first area of interest coming in around 1.5720 (23.6% expansion) followed by the 1.5620 (61.8% expansion) region, which lines up with the March-low (1.5623).

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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