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Euro May Gain by Week-End as Options-Derived Resistance Tames it

Euro May Gain by Week-End as Options-Derived Resistance Tames it

Daniel Dubrovsky, Strategist

Talking Points:

  • Euro might see some volatile price action as we head into the week-end
  • The ECB rate decision and US Q1 GDP could offer the Euro some gains
  • Can options-derived EUR/USD resistance tame it if it does indeed rise?

We will be covering the ECB monetary policy announcement and the Euro reaction live. You may sign-up for our webinar here.

Euro near-term implied volatility warns of elevated price action over the next coming days. The one-day implied volatility reading is at 13.11% which is the highest in about 3 months. Meanwhile, the one-week measurement is at 8.37% which is the largest since early March. There a couple of key event risks on the economic calendar that may explain this.

Implied Volatility and Market Range for the FX Majors

Euro May Gain by Week-End as Options-Derived Resistance Tames it

For other FX implied volatility articles, please visit the Binaries page.

Immediately due ahead later on Thursday is April’s ECB monetary policy announcement. No rate change is expected there but overnight index swaps are pricing in a hike with 54.8% certainty by the same announcement next year. In addition, the central bank’s current stimulus programme is expected to run until September before policymakers begin considering raising rates possibly by the middle of next year.

Recently, we had comments from Executive Board Member Yves Mersch who said that inflation hasn’t weakened as much as they predicted. We also had Governing Council Member Vitas Vasiliauskas mention him being more confident about it being time for QE transition. Keep in mind that March’s Eurozone inflation was weaker-than-expected.

This time, there won’t be accompanying economic projections. With that in mind, keep a close eye on what President Mario Draghi mentions during his briefing afterwards. If he sides with what his partners mentioned, then the Euro could enjoy a boost.

Then, on Friday we will get the first quarter US GDP data. Aside from very recently, data out of the country has been tending to underperform relative to economists’ expectations this year. If the same happens here and the US Dollar falls on softer Fed hawkish monetary policy expectations, then we might see a EUR/USD pullback from its recent pronounced declines.

EUR/USD Technical Analysis: Major Technical Breakthrough

On a daily chart, EUR/USD has made a major technical breakthrough by falling below a rising trend line from April 2017. This occurred amidst negative RSI divergence which warned that momentum to the upside was slowing. Now, the pair finds itself on a stubborn support area. This combines the 38.2% Fibonacci retracement at 1.2173 with the January 17th low (lower purple horizontal line on the chart below).

From here, near-term support could be the “day range low” at 1.2091. In my previous write-up, AUD/USD fell and stopped on its day range low as expected. A push below that exposes the “week range low” at 1.2034 which is sitting just under the 50% midpoint of the retracement.

On the other hand, if prices turn higher than the “day range high” at 1.2259 could be where they may stop to take a breather. A climb beyond that leaves the “week rangehigh” at 1.2316 as the next target. This is also aligned with the 23.6% Fibonacci retracement.

Euro May Gain by Week-End as Options-Derived Resistance Tames it

EUR/USD Trading Resources:

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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