Analysis | September 10, 2020

KTM FX Daily: EURUSD calms ahead of the ECB meeting

Let’s look at the final tally on the FX. markets:

The Yellow metal closed 0.80% higher on Wednesday and recorded the most robust intraday rally in 10 days. The antipodeans were the strongest performers overnight on the back of the weak dollar and risk-on mode. There was no clear catalyst for the dollar weakness yesterday. 

In energy space, Brent rallied by 2% after Tuesday’s -5.50% fall. With higher crude oil prices, the Swedish Krona and Norwegian Krone rallied by 1.30% against the dollar. 

Besides, the Loonie was also rallied by 0.50% with the Bank of Canada policy meeting. Overnight BoC left policy unchanged, as expected. 

Data review: 

The US JOLTS job opening increased to 6.6 million (+617,000), the U.S. Bureau of Labor Statistics reported. The latest data also highlighted that the quits rate rose to 2.1 percent within separations, while the layoffs and discharges rate decreased to 1.2 percent. 

Day ahead: 

ECB meeting: Europe will generate headlines with the ECB meeting. All eyes will be watching the European Central bank to see the communication tone of the “inflation.” The market participants and we do not expect any new policy signals in this week’s ECB meeting. We continue to focus on the inflation theme, which could move the bunds and the EUR. A downward revision to the core inflation is the key driver to the EURUSD. 

“We will listen carefully to what ECB president Lagarde’s answers to any questions on the Federal Reserve’s new average inflation targeting although we expect her just to say the ECB has taken note of the Fed’s decision and that the ECB will not make pre-emptive conclusions of its own review” Lars Sparresø Merklin, Senior Analyst at Danske Bank says in a note to clients today. 

EURUSD: It’s not the ECB that will push the Euro higher; it will be U.S. Election. So far, the dollar downside risk is the key factor in the recent Euro strength, and we expect it to continue towards Q4 2020. 

The near-term range remains between 1.1690-1.2000 levels. Ahead of today’s ECB meeting, we could trade between 1.1750-1.1900. A deceive breakdown below 1.1750 (double bottom) could pull the Euro towards 1.1700. 

The flip side, the previous swing low finds at 1.2040 and 200EA (Weekly) located at 1.2100. Unless the Euro settle above the resistance zone, we could not rule out more consolidation before printing the five-wave 5. 

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

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