Expected ECB tapering is bullish for euro
Expected start of reduction in ECB stimulus measures is bullish for euro. Will the euro continue the rise against the greenback?
Today the European Central Bank meets and the ECB President Mario Draghi is expected to signal the central bank is considering tapering its monthly €60 billion asset purchase program in coming months as euro-zone economy has improved. Recent inflation report confirmed final June headline inflation below 2% target rate and at initial reading of 1.3%, third monthly decline in a row. Even if the ECB refrains from hinting it prepares to reduce stimulus measures soon, the US dollar has been weakening since Fed chair Yellen’s dovish semi-annual testimony and weak June retail sales and inflation reports. Expectations of reduced stimulus in coming months is bullish for euro.
On the daily timeframe, EUR/USD has been trading higher since the start of the year. The price is above the 50-day moving average MA(50) which is rising.
- The Donchian channel is flat, indicating no trend yet.
- The MACD indicator is above the signal line and the gap is widening, which is a bullish signal.
- The Parabolic indicator gives a buy signal.
- The stochastic oscillator is edging lower from the overbought zone.
We believe the bullish momentum will continue after the price closes above the upper Donchian boundary at 1.1581, It can be used as an entry point for a pending order to buy. The stop loss can be placed below the last fractal low at 1.1368, confirmed also by last fractal low. After placing the pending order the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop-loss level (1.1581) without reaching the order (1.1368) we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Technical Analysis Summary
Position - Buy
Buy stop - Above 1.1581
Stop loss - Below 1.1368