Key Points:
- Price action trending in a consolidative manner.
- RSI Oscillator nears overbought levels.
- Plenty of volatility looming with key risks events in the week ahead.
The Euro had a relatively flat week but it wasn’t without volatility, as the ECB’s decision to keep rates on hold, and the requisite speech from Draghi, saw the pair swing in both directions. In particular, some mixed rhetoric from the ECB Chair initially saw the Euro Dollar rallying before declining sharply. Subsequently, the pair largely ended the week near where it started but it now faces some key risk events in the coming week. Therefore, it makes sense to review what occurred in the markets over the past week and what is looming on horizon.
Last week saw the Euro largely remaining within its consolidative phase but not before the pair saw some volatility in the aftermath of the ECB’s decision on rates. As expected, the central bank elected to keep the benchmark rate on hold but the proceeding press conference turned out to be the key risk event. The ECB Chair, Mario Draghi, provided a largely mixed message by suggesting that the downside risks of the currency were limited whilst later in the speech stating that inflationary pressures were absent. Subsequently, the pair swung in both directions in response to this highly mixed rhetoric before ending the week right where it started at 1.0897. In addition, the pair also failed to capitalise on the weaker than expected U.S. economic data with an unexpected slip in the Core Durable Good Order figures to -0.2% m/m.
Looking ahead, the coming week is likely to be a busy one for the Euro Dollar given the release of the latest round of Eurozone GDP figures. The quarterly result is forecast at 0.5% but it is highly likely that we could see a diverging figure given the many shocks that have impacted the Eurozone over the past few months. In addition, on the U.S. side of the fence the Fed’s decision on rates is looming as is the often contentious Non-Farm Payroll results. In particular, expect plenty of volatility from the Fed’s decision given that they have largely avoided setting any form of expectations ahead of the meeting. Subsequently, there is plenty of volatility for the EURUSD likely following the Fed’s decision as well as the requisite speeches.
From a technical perspective, the pair is still constrained by its consolidative phase which resulted in a largely sideways direction for price action over the past week. However, despite the period of moderation, the RSI Oscillator is still relatively close to overbought status, which would suggest a pullback is needed to relieve the pressure. Subsequently, our initial bias for the week is neutral given the aforementioned factors but with the caveat to watch for a pullback. Support is currently in place for the pair at 1.0819, 1.0569, and 1.0495. Resistance exists on the upside at 1.0949, 1.1138, and 1.1343.
Ultimately, the coming week is likely to be relatively critical for the Euro Dollar given that the consolidative phase is likely to breakdown in the near term. In particular, the EU GDP and U.S. FOMC results are likely to fundamentally set the tone for the coming days and the reality is that the Euro is likely to see plenty of volatility in light of these events. Subsequently, keep a close watch on your positions in the lead up to the data release because when the Euro finally breaks away from its sideways direction it’s likely to occur rapidly indeed.
