EURUSD Rate Rebound Unravels as ECB Officials See Scope for Action
EURUSD struggles to retain the rebound from the previous week as European Central Bank (ECB) officials show a greater willingness to further insulate the economy.
It seems as though the ECB will continue to push monetary policy into unchartered territory as the central bank struggles to achieve its one and only mandate for price stability, and fresh updates to the Euro Zone Consumer Price Index (CPI) may push President Mario Draghi and Co. to implement lower interest rates as the headline reading for inflation is expected to narrow to 1.0% from 1.1% per annum in July.
In turn, the ECB may establish a negative interest rate policy (NIRP) for the Main Refinance Rate, its flagship benchmark for borrowing costs, at the next meeting on September 12 as Governor Council member Peter Kazimir sees scope to take “action.”
However, it remains to be seen if the ECB will make a major announcement ahead of President Draghi’s departure at the end of October as Mr. Kazimir insists that the central bank needs “broad unity and agreement” to preserve its credibility.
The comments suggest there’s a growing rift within the ECB as Governing Council member Jens Weidmann argues that it would be “wrong for us to act for action’s sake,” but a growing number of central bank officials may change their tune over the coming months as the Bundesbank warns of an economic “slump.”
With that said, EURUSD stands at risk of facing range-bound conditions over the remainder of the week as the pullback from the monthly-high (1.1250) fails to spur a test of the August-low (1.1027).
EUR/USD Rate Daily Chart
Source: Trading View
Keep in mind, the broader outlook for EURUSD is clouded with mixed signals as the exchange rate clears the May-low (1.1107) following the Federal Reserve rate cut in July, with the 1.1100 (78.6% expansion) handle no longer offering support.
Will keep a close eye on the Relative Strength Index (RSI) as the oscillator comes off of trendline resistance, with the oscillator still tracking the bearish formation from June.
However, the lack of momentum to test the August-low (1.1027) may generate range-bound conditions amid the string of failed attempt to close above the Fibonacci overlap around 1.1190 (38.2% retracement) to 1.1220 (78.6% retracement).
In turn, the fresh series of lower highs and lows brings the 1.1040 (61.8% expansion) region on the radar for EURUSD, with the next area of interest coming in around 1.0950 (100% expansion) to 1.0980 (78.6% retracement).
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--- Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.