The single currency was one of the weakest performers in the G10 vs. the USD last week, after ECB President Draghi suggested that the Bank will take further accommodative action at its next meeting in June. This was an unusual statement for him to make as traditionally the ECB never pre-commits to policy action. This weighed heavily on the EUR, which fell against its major G10 counterparts.
EUR/USD has managed to hang on above key support at 1.3740 – the 100-day sma. Helping to stem the decline in the single currency were comments from the head of Austria’s central Bank, Ewald Nowotny, who said that it is “too early to speculate about June action”.
This has been pounced on by the market on Monday, however, it is worth noting that he also said that cutting the benchmark interest rate “may not be enough” and the ECB “may think about multiple measures.”
Thus, although the ECB may be backtracking slightly from Draghi’s comments, the prospect of further policy action, which could be substantial, remains on the cards for next week, which could be enough to keep downward pressure on the single currency in the near term.
The Technical View:
From a technical perspective, the single currency was looking deeply oversold in the short-term, so a pullback at the start of this week is to be expected, however it could prove temporary. The break below the top of the daily cloud at 1.3785 was a bearish development. If we can’t get back above this level, it would suggest that the uptrend in EUR/USD has come to an end, and there could be further downside.
Below 1.3740 opens the way to 1.3722 – the daily cloud base. Below here is the start of a technical downtrend, which opens the way to 1.3664 – the 61.8% Fib retracement of the Feb low to March high.