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EUR/USD Rate Rebound Unfolds After Filling Price Gap from 2017

EUR/USD Rate Rebound Unfolds After Filling Price Gap from 2017

2020-02-26 01:00:00
David Song, Strategist
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EUR/USD Rate Talking Points

EUR/USD retraces the decline from earlier this month after filling the price gap from April 2017, and the bearish momentum may continue to abate as the Relative Strength Index (RSI) threatens the downward trend from earlier this year.

EUR/USD Rate Rebound Unfolds After Filling Price Gap from 2017

EUR/USD extends the rebound from the monthly low (1.0778), with the exchange rate carving a series of higher highs and lows, and Euro Dollar may stage a larger recover over the coming days as the European Central Bank (ECB) tames speculation for monetary support.

ECB board member Francois Villeroy de Galhau insists that the coronavirus is expected to have “negative but temporary consequences” on the Euro area, and went onto say that the Governing Council “shouldn't overstate the adequacy of a monetary policy response.”

The comments suggest the ECB will stick to the status quo at the next meeting on March 12 as the central bank continues to expand its balance sheet by EUR 20B/month, and President Christine Lagarde and Co. may merely attempt to buy time as “members saw indications that the Governing Council’s September package was being gradually transmitted to the economy.”

Image of ECB interest rates

The account of the first meeting for 2020 revealed that “incoming economic data and survey information pointed to some stabilisation in euro area growth dynamics,” and the ECB may stick to the sidelines for the foreseeable future as “the euro area fiscal stance was expected to provide some support to economic activity,”

It seems as though the ECB is in no rush to respond to the coronavirus even though the “Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, andPresident Lagarde and Co.may continue to endorse a wait-and-see approach as the central bank remains reluctant to push the main refinance rate, the benchmark for borrowing costs, into negative territory.

With that said, EUR/USD may stage a larger rebound ahead of March, but the diverging paths between the ECB and Federal Reserve may continue to drag on the exchange rate as Chairman Jerome Powell and Co. see US interest rates on hold in 2020.

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EUR/USD Rate Daily Chart

Image of EUR/USD rate daily chart

Source: Trading View

  • Keep in mind, the monthly opening range has been a key dynamic for EUR/USD in the fourth quarter of 2019 as the exchange rate carved a major low on October 1, with the high for November occurring during the first full week of the month, while the low for December happened on the first day of the month.
  • With that in mind, the opening range is in focus for March, but recent price action raises the scope for a larger rebound in EUR/USD as the exchange rate extends the series of higher highs and lows from the February low (1.0778).
  • The break/close above the 1.0830 (78.6% expansion) to 1.0860 (23.6% retracement) region opens up the Fibonacci overlap around 1.0950 (100% expansion) to 1.0980 (78.6% retracement), with the next area of interest coming in around 1.1040 (61.8% expansion).
  • Will keep a close eye on the Relative Strength Index (RSI) as it bounces back from oversold territory and comes up against trendline support, with a break of the bearish formation likely to be accompanied by a larger rebound in EUR/USD.
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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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

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