ECB On Watch Today

EURUSD is trading around its highest levels in four months as traders await the July ECB meeting today. The bank is widely expected to keep rate son hold this month with traders pegging September as the next likely time for a cut. The ECB has clarified that the June cut was not the beginning of a steady sequence of cuts and would instead defer to incoming data for decisions on future rate adjustments. The guidance was interpreted by traders as downplaying near-term easing chances with traders slashing their July rate-cut probabilities accordingly, leading EUR higher.

Dovish Fed Shift

The pair has also been helped higher recently by the dovish shift in Fed expectations. On the back of a slew of weaker-than-forecast US CPI data, traders have now once again ramped up their near-term Fed easing expectations, looking at a September cut followed by at least one further cut this year.  The shift lower in USD has helped drive EUR higher and the pair looks vulnerable to fresh upside today unless we get a strong easing signal from the ECB. If the bank simply reaffirms its message of remaining data dependent, this is unlikely to be enough to weigh on EUR near-term. Given that there haven’t been any significant data developments since June it appears unlikely that the ECB will change its outlook at this juncture to turn more dovish.

Technical Views

EURUSD

The rally off the 1.0724 lows has seen the market trading back up to test the 1.0937 level resistance with the bear channel highs sitting just above. This is a key resistance area for the market which, if broken, opens the way for a test of 1.1126 next in line with bullish momentum studies readings.