Analysis | January 21, 2021

KTM FX Daily: ECB meeting preview

            image source: Flickr

On the daily chart, the EURUSD lost the 20MA and hovered around 50MA. Today, the ECB meeting will offer guidance for the EUR crosses and major. Most of the EUR crosses on the verge of a bearish breakdown. 

  • EURJPY: Traced out a double top pattern at 127.50. Focus on the critical moving averages at 200MA (Weekly) and 50MA (monthly). The price already lost 50MA on the daily chart.
  • EURGBP: Triple bottom in place. Will it hold? Support spread between 0.8860-0.8800. Weekly and Monthly closing matters.
  • EURNZD: Monthly closing matters. Trading at 50MA (monthly) < 1.6400 and 1.6250 exists.

ECB preview: We and the market expect no monetary policy changes at Thursday’s meeting. But the spotlight remains on Lagarde’s communication skills. The EUR strength is not a concern for the ECB at this meeting as EUR is trading at the level of December 2020. 

The upcoming European Central Bank meeting will take place on January 21, 2021, starting at 14:30 CET:

  • Introductory statement by the President of the ECB.
  • Question and answer session. Registered journalists pose questions to the President and the Vice-President of the ECB

Analysts forecast:

  • Nordea says, “we see risks tilted towards a slightly hawkish market reaction. Further suggestions that the flexibility of the bond purchases means a slower pace of purchases ahead and focus on not having to use the full PEPP envelope could lead to somewhat higher yields and spreads as an immediate response.” 
  • Westpac says, “Policy to remain on hold while ECB assesses Dec package.” 
  • Carsten Brzeski at ING cited, “This week’s ECB meeting should not bring any new policy action but will once again test Christine Lagarde’s communication skills.” 
  • Reza Moghadam at Morgan Stanley said, “My sense is that the doves, not the hawks, at the ECB will ultimately prevail, especially given the risk of long-term economic scarring from the pandemic.” 

TECHNICAL OVERVIEW

We will trade between 1.2000-1.2220 before Thursday’s ECB meeting. The corrective A-B-C pattern suggests 1.2000 is pivotal. 

The back-to-back two-week decline seems to have changed the sentiment. A move below 1.2000 could confirm the reversal pattern, which is likely to trigger more weakness in the short term. But any fall below 1.2000 levels doesn’t change our higher EUR theme. For all the longs, 1.1900/1.1880 is the stop loss. If the price is moving higher, the key resistance levels to watch out are 1.2215 and 1.2285.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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