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EUR/USD Rate Eyes 2020 Low Amid Mixed Views Surrounding OMT

EUR/USD Rate Eyes 2020 Low Amid Mixed Views Surrounding OMT

2020-04-07 04:00:00
David Song, Strategist
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EUR/USD Rate Talking Points

EUR/USD approaches the yearly low (1.0636) following the limited reaction to the US Non-Farm Payrolls (NFP) report, and the exchange rate may continue to exhibit a bearish behavior as it extends the series of lower highs and lows from the previous week

EUR/USD Rate Eyes 2020 Low Amid Mixed Views Surrounding OMT

EUR/USD remains under pressure despite the 701K contraction in US job growth, and the Euro may face headwinds ahead of the next European Central Bank (ECB) meeting on April 30 as there appears to be a rift within the Governing Council.

In a recent interview, ECB board member Isabel Schnabel insists that the “PEPP (Pandemic Emergency Purchase Programme) is the right instrument to support the euro area,” with the official going onto say that “Outright Monetary Transactions (OMTs) were designed to address a different contingency: the risk that the expectations of a euro area break-up might become self-fulfilling.

The comments suggest the ECB will rely on its unconventional tools to support the monetary union even though Yannis Stournarasargues that “common issuance of debt is common action against the common enemy,” and the Governing Council may continue to tap its non-standard measures despite “proposals to use the European Stability Mechanism or the European Investment Bank.”

It remains to be seen if the ECB will continue to push monetary policy into uncharted territory as officials remain reluctant to push the main refinance rate, the benchmark for borrowing costs, into negative territory, but the Governing Council may continue to endorse a dovish forward guidance as President Christine Lagardeemphasizes that the central bank is “fully prepared to increase the size of our asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed.”

With that said, the current environment may keep EUR/USD under pressure as the US Dollar benefits from the flight to safety, and the exchange rate may continue to give back the advance from the yearly low (1.0636) as it extends the series of lower highs and lows from the previous week.

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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.
  • The opening range for 2020 showed a similar scenario as EUR/USD marked the high of the month on January 2, with the exchange rate carving the February high during the first trading day of the month.
  • However, the opening range for March was less relevant amid the pickup in volatility, with the pullback from the yearly high (1.1495) producing a break of the February low (1.0778) as the exchange rate slipped to a fresh 2020 low (1.0636).
  • Nevertheless, the recent recovery in EUR/USD unravels following the string of failed attempt to close above the 1.1140 (78.6% expansion) region, and the exchange rate may continue to exhibit a bearish behavior as it extends the series of lower highs and lows from the previous week.
  • Need a close below 1.0780 (100% expansion) to open up the yearly low (1.0636), with the next area of interest coming in around the 1.0570 (100% expansion) to 1.0600 (161.8% expansion).
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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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