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EURO, CURRENCY VOLATILITY, ECB – TALKING POINTS

  • EURUSD overnight implied volatility jumped to 10.76 percent ahead of Thursday’s ECB meeting, which is the highest reading since December 12
  • ECB is expected to stand pat on rates, but forward guidance language looks to stir Euro price action
  • Join DailyFX Analyst Nick Cawley who will be hosting the ECB Rate Decision Live Data Coverage Webinar or download the DailyFX Q2 EUR Forecast for additional Euro insight

Currency market price action has been on the rise as of late and threatens to climb higher. The ECB could serve as the next catalyst that sparks additional forex volatility with the world’s largest central bank scheduled to publish its latest monetary policy decision Thursday at 11:45 GMT. Although the policy interest rate is expected to be left unchanged according to overnight swaps pricing, commentary from ECB President Mario Draghi subsequent to the policy statement release looks to provide markets with clues to the ECB’s next move.

EURUSD PRICE CHART: DAILY TIME FRAME (DECEMBER 31, 2018 TO JUNE 05, 2019)

Spot EURUSD Price Chart Ahead of June ECB Meeting

The Euro has ascended steadily against a depreciating US Dollar with the latest topside breakout in spot EURUSD testing resistance near the 1.1300 handle. The 38.2 percent Fibonacci retracement level from the year-to-date high and low aligns with upper bound of the 1-standard deviation implied trading range which may prove difficult for spot prices to overcome. Moreover, resistance from the longer-term bearish downtrend line formed by the series of lower highs recorded throughout 2019 threatens to keep EURUSD upside at bay – an increasingly dovish message communicated by the ECB tomorrow would likely reignite the drift lower.

Yet, EURUSD downside could be limited by broader weakness experienced by the greenback as rate traders price in growing chances that the Federal Reserve cuts rates this year. The 1.1200 price level has served as an area of confluence in the past and spot rates might find support here along with the upward sloping EMAs and 23.6 percent Fib. Although, it is noteworthy that EURUSD risk reversals recently flipped to positive as forex traders seek protection against rising spot prices as opposed to dropping rates. This could indicate a bullish bias for spot EURUSD as demand for call options outweighs that for puts.

- Written by Rich Dvorak, Junior Analyst for DailyFX

- Follow @RichDvorakFX on Twitter