Ahead of Thursday’s ECB decision, the currency pair in focus will, of course, be the euro/dollar which has been feeling the effect of recent positive sentiment towards the USD with the pair moving sharply lower and away from the volume point of control at 1.2325 and attempting once again to break out of its consolidation straight jacket.
Indeed, the euro/dollar has been in a consolidation phase of price action since late January, when the pair oscillated around the volume point of control. To the upside, the ceiling of resistance of this congestion is at 1.2525 with the floor of support at 1.2154, but what is interesting and significant is this support region is one that stretches back to 2003.
However, current price action for the euro/dollar has also been significant, not least because bullish momentum in the USD appears to have stalled and buyers have stepped into the euro as a result. Moreoever, there is an expectation that perhaps Draghi’s press conference on Thursday may not follow its usual dovish course, something that may have also been hinted at by Nowotny’s unexpected comments earlier this month when he stated the time may have come to ‘normalize’ monetary policy in the eurozone.
On that occasion the euro surged higher before the ECB let it be known these comments had been Nowotny’s own and did not represent any shift in policy. But we also have to remember that Draghi’s tenure as head of the ECB ends next year (as does Mark Carney’s at the BOE) so we can expect both contenders for these posts, and their influencers to begin testing market reaction of which the response to Nowotny's comments was one.
But to return to the technical picture for the euro/dollar, the level to watch is 1.2194. A strong close above would see the euro/dollar poised to retest 1.2239, which is also a level that is providing support for the pair at time of writing. A break here then targets 1.2256.
So, interesting times ahead for euro, the most political of all currencies and whose future direction is to become even more influenced by political events as Draghi’s time as head honcho at the ECB begins to wind down.