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Euro Drops Sharply As ECB Said To Cut Inflation Outlook

Published 06/07/2017, 07:26 AM
Updated 05/14/2017, 06:45 AM

Markets were quiet on Tuesday and traders are wondering whether this could be the calm before the storm. There was little consistency in the performance of both EUR/USD and GBP/USD ahead of tomorrow's Super Thursday as market participants are in a 'wait and see mode'. On Thursday, most attention will be paid to the U.K.'s snap election and testimony from former FBI Director James Comey. Comey's testimony will be interesting for dollar traders as it may offer clues on how politically effective the Trump administration will be in pushing through its policy agenda. Currently, investors remain risk-averse ahead of these important risk events and this behavior leads to thin trading volumes which is why profitable moves are lacking.

The euro dropped sharply as ECB officials said the central bank is preparing to cut its inflation outlook. This statement came just one day before the final numbers are published on Thursday. The euro was recently supported by the assumption that the ECB may take a less dovish tone as it may be nearing the end of their stimulus outlays. Even continued dovish comments from ECB President Mario Draghi have not altered the positive sentiment in the euro. A downgrade to the inflation outlook would however undermine the market’s presumption and is thus euro-negative.

The euro reversed shy of 1.1280 and headed for a test of the 1.12-support. A next lower target could be at 1.1170.

The GBP/USD found some support near 1.2870 after it failed to break above 1.2950. In short-term time frames, we expect the price action to be limited to a range between 1.2960 and 1.2890. If the pound falls below 1.2870, bearish momentum could accelerate, driving the pair towards 1.2840 and 1.28. However, everything will depend on the outcome of tomorrow's U.K. vote so the pound could lack direction in the run-up to this high risk event.

Here are our daily signal alerts:

EUR/USD
Long at 1.1290 SL 25 TP 40
Short at 1.1245 SL 25 TP 20, 40
GBP/USD
Long at 1.2916 SL 25 TP 20, 50
Short at 1.2875 SL 25 TP 25, 40

We wish you good trades and many pips!
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