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EUR/USD, EUR/JPY Trade Setups Ahead of ECB Today

EUR/USD, EUR/JPY Trade Setups Ahead of ECB Today

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- EURUSD coiling in flag on H4 for move through 1.3970. 3

- EURJPY preferred trade lower below 140.95.

- ECB caps off a heavy data day on the forex economic calendar.

To keep up with developments central banks and their policy changes, be sure to sign up for my distribution list.

Euro-Zone inflation pressures are neither intensifying nor deflating from their current low levels, which might warrant additional dovish policy action, including non-standard measures such as a large scale asset purchase program. Energy remains the largest drag on headline inflation, at a -1.2% clip in April, which further limits the ECB’s desire to ease imminently; inflation for the sake of inflation will only further erode a weak consumer base’s purchasing power.

The recent uptick in the regional PMI surveys will only underscore the ECB’s policy inertia. The overnight interbank lending rate (EONIA) that we’ve cited numerous times the past few weeks as a potential cause for concern is less of a threat now that it's dipped below the ECB’s reference rate (0.108% (EONIA) versus 0.25% (ECB main refinancing rate).

The May ECB meeting should be nothing more than a placeholder before the Governing Council updates its economic projections at the June meeting. It is worth noting that the banking stress tests are being conducted under the assumption that inflation will not fall any further from here.

Watch the video for trade setups in EURJPY and EURUSD ahead of the ECB's rate decision today. Join me at 11:30 GMT in DailyFX Plus for a strategy session ahead of the release.

Read more: Hollow NFPs Leaves US Dollar, S&P 500 Vulnerable to Sellers

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail

Follow him on Twitter at @CVecchioFX

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