The anti-risk U.S. dollar started this day with another round of weakness on optimism that U.S. fiscal spending will revive economic growth. Yesterday however, we saw the dollar slightly appreciating against the euro but bearish momentum was not strong enough to send the EUR/USD below 1.2070.
The GBP/USD surged to a high of 1.3718 but failed to hold onto its high level and the pair was trading again below 1.37 earlier this morning. We now focus on a trading range between 1.3780 and 1.3580.
The DAX treated water recently and we saw the index fluctuating within a relatively narrow price range between 14,000 and 13,700. This could however change in the near-term and we brace for larger market moves and pencil in a trading range between 14400 and 13800.
Today the focus will be on the European Central Bank policy decision and while no changes are expected, traders will have a close eye on ECB President Christine Lagarde. If she sounds more optimistic than the market expects we could see the euro rallying but most of Lagarde’s recent upbeat tone is already priced in into the euro’s strength, which is why today’s decision could prove to be a non-event.
The ECB appears to be on track to retain its current policy amid worries about new coronavirus strains, political tensions in Italy and the euro’s strength that dampens the rebound in inflation.
While chances are still in favour of the bulls – provided that bulls are able to stabilize the euro above 1.2170 - we expect potential gains to be limited until 1.2250-70. However, it all depends on the market’s risk appetite. Bears on the downside will focus on the crucial 1.20-support.
Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.