After rejecting the 1.07-mark, the euro noticeably strengthened against the U.S. dollar and traders are now wondering whether Mr. Draghi could provide a further boost for the euro. As stated in Tuesday's analysis, we expect next resistance to be at 1.0830/50 and still anticipate gains to be limited to this level. The European Central Bank is expected to extend its bond-buying program by six months, but more importantly, investors are watching to see if the ECB signals a future guidance on when it will wind down or taper its QE program.
If there is any hint of tapering, the euro will soar and could overshoot the bullish target around 1.0830. Moreover, the ECB could disappoint the markets if the program is not extended that long or if the central bank cuts monthly purchases. This would be euro-positive.
The main focus, therefore, is on the Q&A session during the ECB press conference beginning at 13:30 UTC. For ECB President Mario Draghi it could be a communication challenge, as the market reacts very sensitively to any unexpected changes. Thus, any comments on the future outlook might be misinterpreted at this stage. Traders should prepare for volatile fluctuations and exaggerated currency movements, as the market does not have a lot of clarity on what to expect from the ECB.
EUR/USD
The euro found firm ground near 1.05 - Further gains to come?
Bullish scenario: Given the recent upward channel, we expect potential gains to be limited to 1.0835 but the price action will depend on Draghi's communication. If the euro climbs above 1.0860, we might see a run for 1.0910 and 1.0950. We see a strong resistance around 1.0950 and it would require an unexpectedly hawkish ECB statement, or a misinterpretation of it, to drive the euro beyond this level.
Bearish scenario: On the bottom side we expect the 1.0680-level to lend some support for the euro. Below 1.0660 however, we favor a bearish bias and shift our focus to lower targets at 1.0580 and 1.0470.
The ECB announces its rate decision at 12:45 UTC but no changes are expected. Then all eyes turn to the ECB Press Conference 45 minutes later.
We wish all traders good trades for today and many profits.
Here are our daily signal alerts:
EUR/USD
Long at 1.0790 SL 25 TP 40, 60
Short at 1.0740 SL 25 TP 25, 50
GBP/USD
Long at 1.2675 SL 25 TP 20, 50
Short at 1.2615 SL 25 TP 30-40
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