The main event of the week for the EUR/USD will take place this Thursday, with the ECB meeting, after the pair marked a new weekly low at 1.1752 yesterday morning, a 3 month low, and after a rebound for the moment hampered by the psychological threshold of 1.18.
The question on the minds of Euro Dollar traders this Thursday morning is whether the ECB meeting will have a bullish or bearish impact on EUR/USD.
EUR/USD vs. ECB: the bullish thesis
With the Delta variant of the coronavirus raging, most investors are anticipating a dovish tone from the ECB. Many analysts even believe that the central bank could change its monetary policy, without actually changing the policy rate.
Since EUR/USD traders are already expecting a dovish ECB meeting, the bar for a “hawkish surprise” is very low. In other words, a cautious ECB speech that is not accompanied by, for example, an increase in asset purchases could have a bullish impact on the Euro Dollar.
On the other hand, from a technical point of view, there are reasons to be bullish on the EUR USD, which yesterday rebounded from the lower bound of a long term triangle. If the development of the Euro Dollar in this triangle continues with a move back towards the upper bound, it will suggest that the Euro could target 1.22 within a few weeks.
How could the ECB bring down the Euro Dollar?
On the other hand, there are many decisions the ECB could make today that could weaken the EUR/USD. In particular, the central bank is expected to provide details on its new inflation target presented two weeks ago, which has been seen as a dovish turn of events.
Investors are also waiting to see if the ECB will put its money where its mouth is by taking further action.
In this regard, some analysts believe that the ECB could announce an increase in its asset purchases under the PEPP plan beyond March 2022, the current deadline. This would be a bearish factor for EUR USD.
Finally, the ECB’s level of concern over covid and the Delta variant will also be watched for a bearish impact. If the ECB believes that the situation will be quickly brought under control, the Euro will not be affected. But if Christine Lagarde is worried about the prospect of further strict confinements, EUR USD could fall.
What are the EUR USD thresholds to watch out for in the face of the ECB?
From a technical point of view, the psychological threshold of 1.18, which has been blocking EUR/USD rises since yesterday afternoon, is an immediate resistance, on which the ECB is also sitting.The Euro Dollar is currently in a bearish trend line, as seen on the chart below:
The Euro Dollar therefore faces a solid hurdle at 1.18. Above this level, 1.1820 and 1.1850 are the next potential resistances. On the downside, note that several recent lows have been marked in the 1.1750-65 area, which is the first important support to consider. Below that, the April low around 1.17 could be targeted.