The euro against the dollar fell to a 15-week low and analysts predict that this fall may intensify ahead of the ECB meeting. The ECB is expected to confirm the new monetary policy parameters with concrete measures, for example, accelerating the bond purchase program or strengthening the purchase of assets. Such decisive action could trigger a sell-off in the euro.
Will the ECB take such radical steps, and is it worth selling the euro against the dollar now? Alexander Kuptsikevich, an analyst at FxPro, answered a question from Fortrader magazine.
– In my opinion, one should not expect a new acceleration of purchases from the ECB under the PEPP program. Perhaps the most that the euro bears can really count on are hints that the recent revision of the ECB’s strategy will allow to extend (but not strengthen) the program of buying assets on the balance sheet.
Given the experience of Japan, QE may well be eternal or so, and over time become more and more comprehensive, because so far we have never seen that with the help of quantitative easing inflation has been able to disperse. This applies not only to Japan, but also to the eurozone itself, Switzerland and the United States.
For the forex market, an equally important component is the reaction of currencies to soft monetary policy. In this case, it is hardly worth talking about any destructive long-term consequences for the exchange rate. It seems to me that speculators are also gradually imbued with this idea, since the softness of the central banks regarding QE does not trigger any more sales of national currencies and dizzying rallies in the stock market.
On the eve of the ECB, it is worth being prepared for a moderately soft tone and a willingness to increase support if necessary.
Technical analysis of the euro
The technical picture for EURUSD is mixed. On the daily charts, there is a bullish divergence in price and the RSI that has retreated from the oversold area. This is a potential bullish signal, reflecting the weakening of the bears’ grip. But a more important trend indicator still looks like the looming cross of death in the pair. That is, the failure of the 50-day moving average below the two-hundred-day moving average, while the price is below both lines. This could turn out to be a strong bearish signal, capable of triggering impulsive sell-offs in the pair even if news is favorable for the pair’s upside.
The short answer is: yes, it is worth taking a closer look at the EURUSD sales on the rise.