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EUR/USD Rate Talking Points

EUR/USD fails to test the May-low (1.1107) ahead of the European Central Bank (ECB) meeting on June 6, with the exchange rate snapping the series of lower highs and lows from the previous week.

EURUSD Rate Consolidates Ahead of ECB Amid Failure to Test April-Low

EUR/USD appears to be catching a bid as the ECB is widely expected to retain the current policy, and more of the same from the Governing Council may keep the exchange rate afloat as the central bank remains confident in achieving its one and only mandate for price stability.

In fact, the ECB may largely endorse a wait-and-see approach as President Mario Draghi & Co. prepare to launch another round of Targeted Long-Term Refinance Operations (TLTRO), and EUR/USD may continue to consolidate throughout the first full week of June as the Governing Council appears to be in no rush to alter the forward-guidance for monetary policy.

Image of ECB interest rates

With that, it seems as though the ECB will be on autopilot ahead of President Draghi’s departure at the end of October, but the central bank may come under increased pressure to further insulate the monetary union amid the weakening outlook for the global economy. As a result, the Governing Council may continue to rely on non-standard measures, with the Euro stands at risk of facing a more bearish fate over the coming days if Governing Council shows a greater willingness to implement a negative interest rate policy (NIRP).

Until then, EUR/USD may continue to consolidate amid the failed attempt to test the May-low (1.1107), with recent price action raising the risk for a larger rebound as the exchange rate snaps the series of lower highs and lows from the previous week.

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EUR/USD Rate Daily Chart

Image of EURUSD daily chart
  • Keep in mind, the broader outlook for EUR/USD remains tilted to the downside as both price and the Relative Strength Index (RSI) continue to track the bearish formations from earlier this year, with the near-term outlook mired by the failed attempt to push back above the Fibonacci overlap around 1.1270 (50% expansion) to 1.1290 (61.8% expansion).
  • With that said, the 1.1100 (78.6% expansion) handle remains on the radar, but lack of momentum to test the May-low (1.1107) raises the risk for range-bound conditions.
  • Next downside area of interest comes in around 1.1040 (61.8% expansion) followed by the Fibonacci overlap around 1.0950 (100% expansion) to 1.0980 (78.6% retracement).

For more in-depth analysis, check out the 2Q 2019 Forecast for Euro

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.