Analysts predicted two scenarios of the euro’s response to the ECB policy decisions. The euro could have either spiked or slumped. In practice, neither happened and the market got stuck in a trading range. The thing is that the European regulator caught the market off-guard. The ECB dropped a bombshell that the volume of the bond-buying program would be scaled down from €80 billion to €60 billion per month.
This is a definite move towards tightening monetary policy that should have triggered a rapid rally of the single European currency. The ECB Governing Council realizes perfectly well its responsibility so that any sharp moves could throw the market into a panic. The fact that the market is overwhelmed by a panic will inevitably hurt the economy. This is an unwanted scenario which the economy is not ready for. Experts have just spotted the green shoots of recovery following the pandemic-driven crisis.
Thus, the European regulator extended the term of monetary stimulus. The bottom line is that the ECB maintained settings of monetary policy unchanged that aroused a negative response from the market. Nevertheless, the euro kept its footing for the simple reason. The central bank sent a message that it is carefully monitoring the situation and is ready to introduce significant changes into monetary policy if necessary. Oddly enough, nobody expected such an outcome of the ECB policy meeting.
ECB Key Interest Rate
Yesterday, the market neglected a weekly update on US unemployment claims. The report was released parallel to the press conference of ECB President Christine Lagarde, so the market downplayed other reports. The focal point was remarks by Christine Lagarde. However, jobless claims were slightly different than expected. The number of initial unemployment claims declined 35K versus the expected 26K. On the minus side, the number of continuing claims for unemployment insurance fell just 22K, much weaker than the expected 62K decrease.
US Continuing Unemployment Claims
Today there is a strong likelihood that the US dollar could lose ground due to a report on US factory inflation. Producer prices in the US are expected to jump to 8.3% y/y in August from 7.8% a month ago. The producer price index is viewed as a forward-looking indicator of consumer inflation which has already leapt to the highest level in 13 years. So, the CPI is set to zoom up to new record highs. No doubt, soaring inflation is likely to disrupt a recovery of the US economy.
US Producer Price Index
EUR/USD’s drop off the resistance area of 1.1880/1.1905 pushed the price back to 1.1800 where the currency pair got stuck in the range of 1.1800 to 1.1840 for 40 hours. Currently, EUR/USD is building up momentum, so a breakout of one of the borders is coming soon. This will increase volatility.
RSI indicator is hovering at around the threshold level of 50 that confirms a range-bound market.
The technical chart reveals an upward move relative to the correctional phase in the period from Aug. 20 until Sept. 3.
Outlook and trading tips
EUR/USD is expected to continue trading sideways within the borders of 1.1800/1.1840 for a while. Anticipating volatility at the near time, the best solution will be a breakout trading strategy as the price will move in the breakout’s direction.
It makes sense to plan long positions on EUR/USD if the price manages to hold firmly above 1.1850.
Short positions could be planned if the price holds firmly below 1.1790.
Complex indicator analysis is generating a mixed signal for short-term and intraday trading amid the range-bound market. Technical indicators suggest sell positions for a medium term on the back of a downward move from resistance of 1.1880/1.1905.
InstaForex Group