General market theme
Yet another day of attractive price action in the major European currency pairs, with diverging performance between the euro and the pound again. All this week we have mentioned how important the upcoming ECB meeting will be for the euro and how bearish the sentiment is for the single currency, and it is finally time to see what the central bank will do to provide further stimulus to the domestic market. The small rally to the upside we noticed yesterday on the euro was nothing else than investors reducing their exposure to the currency by exiting any short positions they held ahead of the ECB meeting.
Price action highlights
The euro changed direction a couple of times yesterday, and even though the day started in the red for the single currency and the decline took it down to the 1.0950 area, a short-covering rally was triggered after that. The euro made it all the way to the 1.1030 area on the back of it, but again it spent the rest of the US and Asian sessions declining. This morning the rate is trading around the 1.0970 area and the crucial support lies at the 1.0950 area, as a break below will clear the path for the 1.0900 and 1.0800 targets to the downside.
The cable remained rather lifeless again over the past 24 hours, trading sideways on either side of the 1.4200 area. There was a lack of any UK-related news recently, and with nothing fresh to dictate price action or direction the UK currency has kept silent. We think that the exit from this formation will show us what’s next, however the key levels to be broken in order to attract investors’ attention are the 1.4285 highs to the upside and 1.4130 lows to the downside.
Focus of the day
It goes without saying that traders will focus their attention on the ECB meeting today and the press conference that will follow it. The market participants are very keen to find out what additional steps Mario Draghi will take in order to further ease monetary policy and provide more stimulus for growth in the Eurozone. Later in the day the release of the Initial Jobless Claims from the US is also scheduled for today, but it acts only as a dessert after the ECB main course.
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