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Euro Talking Points

EUR/USD pares the decline from the previous week even as the European Central Bank (ECB) strikes a dovish outlook for monetary policy, and euro-dollar may continue to consolidate over the coming days as the exchange rate appears to be stuck in a near-term holding pattern.

Image of daily change for major currencies

EUR/USD Rate Carves Holding Pattern Within Bearish Trend

Image of daily change for EURUSD

Headlines arising from the European Union (EU) Summit in Brussels suggest the ECB will continue to strike a dovish outlook for monetary policy as President Mario Draghi warns that a trade war may have a larger-than-anticipated impact on the euro-area economy, and the central bank may keep the door open to further support the monetary union as the quantitative easing (QE) program is now set to expire in December.

At the same time, the updates to the Euro-Zone Consumer Price Index (CPI) should keep the Governing Council on the sidelines as the core reading narrows to an annualized 1.0% from 1.1% in May, and the developments may encourage the ECB to merely buy more time at the next meeting on July 26 as the central bank struggles to achieve its one and only mandate for price stability.

Looking ahead, Governing Council members Peter Praet, Yves Mersch, Ewald Nowotny, Daniele Nouy and Jens Weidmann are all scheduled to speak next week, and more of the same from the ECB officials may tame the recent rebound in EUR/USD especially as the central bank appears to be on track to carry the zero-interest rate policy (ZIRP) well into 2019.

EUR/USD Daily Chart

Image of EURUSD daily chart
  • Keep in mind, EUR/USD appears to be carving a triangle/wedge formation within a bearish trend, and the failed attempts to test the monthly-high (1.1852) keeps the path of least resistance tilted to the downside.
  • Need a break/close below the 1.1500 (38.2% expansion) handle to open up the downside targets as both price and the Relative Strength Index (RSI) extend the bearish formations carried over from earlier this year.
  • First downside region of interest comes in around 1.1390 (61.8% retracement) to 1.1400 (50% expansion) followed by the 1.1290 (61.8% expansion) hurdle.

For more in-depth analysis, check out the Q2 Forecast for the Euro

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!

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.