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EUR/USD Bid Ahead of ECB Meeting; Topside Targets in Focus

EUR/USD Bid Ahead of ECB Meeting; Topside Targets in Focus

David Song, Strategist

Talking Points:

- EUR/USD Bid Ahead of ECB Meeting; Topside Targets Favored on Wait-and-See Approach.

- USDOLLAR Weakness to Persist on Mixed Data, Slowing ISM Manufacturing.

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EUR/USD Daily Chart

Chart - Created by David Song

  • Even though the European Central Bank (ECB) keeps the door open to further embark on its easing cycle, more of the same from President Mario Draghi and Co. may fuel a larger advance in EUR/USD as the pair breaks out of the descending channel formation from early May and appears to have carved a near-term bottom around 1.1090 (50% retracement) to 1.1110 (50% retracement).
  • Beyond the details surrounding the ECB’s corporate-bond purchases and the Targeted Long-Term Refinance Operation (T-LTRO), the Governing Council may largely endorse a wait-and-see approach as the non-standard measures work their way through the real economy; may see the single-currency outperform on the back of the weakening outlook for the global economy as the euro-area returns to its historical role as a net-creditor to the rest of the world.
  • As EUR/USD preserves the upward trend carried over from December, the first topside region of interest comes in around 1.1210 (61.8% retracement) to 1.1230 (38.2% retracement), followed by 1.1270 (38.2% retracement) to 1.1290 (23.6% retracement).
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd has flipped net-short EUR/USD ahead of the ECB interest-rate decision, with the ratio hitting an extreme back in May as it slipped to -2.50.
  • The ratio currently sits at -1.00 as 50% of traders are long, with short positions 6.9% higher from the previous week even as open interest stands 1.5% below the monthly average.

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
US Dollar Index11969.7911999.2511953.46-0.21118.74%
EUR/USD Daily Chart

Chart - Created by David Song

  • The USDOLLAR pares overnight losses as the ISM Manufacturing survey beats market expectation in May, with the greenback at risk for a further advance as it breaks out of the bearish trend from earlier this year and consolidates above the Fibonacci overlap 11,951 (38.2% expansion) to 11,965 (23.6% retracement).
  • Nevertheless, the ISM survey may do little to boost expectations for a strong Non-Farm Payrolls (NFP) report as the employment component contracts for the sixth consecutive month; will keep a close eye on ADP Employment report as private payrolls are projected to increase 174K in May.
  • Nevertheless, the USDOLLAR stands at risk for a larger recovery with the next topside hurdle coming in around 12,049 (78.6% retracement) to 12,057 (23.6% expansion).
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Read More:

US DOLLAR Technical Analysis: Another Monthly Opening Range Worth Watching

Gold Prices in Free Fall- Shorts at Risk into NFP

EUR/GBP Breakdown Eyes Critical Support at 7520

GBP/USD Successful Re-Test of Former Resistance Line

--- Written by David Song, Currency Analyst

To contact David, e-mail 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.