- Summary:
- EURUSD is under sellign pressure as tensions mount between Germany and the ECB amid the central bank's bond purchasing program.
Following yesterday’s sharp drop, EURUSD is holding steady in this morning’s session around 1.0800. However, technicals suggest there could be more downside ahead. The speeches of two key central bankers from the Bundesbank and ECB may just trigger it.
Aside from risk aversion brought about by the staggering job losses in the US, EURUSD traded lower as tensions between the ECB and Germany arise. This came after the central bank was adamant to a German court’s ruling which threatened to block purchases of Germany’s bonds. This was bearish for the euro because it insinuates political instability.
We could hear more about this issue when two key officials make their speeches later today. At 9:00 am GMT, Deutsche Bundesbank President Jens Weidmann will talk about banking amid Covid-19. Meanwhile, ECB President Christine Lagarde is expected to participate in a Bloomberg webinar at 3:00 pm GMT. More conflicting comments between the two central bankers could send EURUSD lower.
We also have a couple of economic reports due for release which could spark volatility. At 7:00 am GMT, the German industrial production report for March is expected at -7.3%. Meanwhile, the French version of the report is due at 7:45 am GMT with the consensus at -12.7%.
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EURUSD Outlook
On the 1-hour time frame, EURUSD can be seen trading in a very tight consolidation in today’s Asian session. Because this follows after a strong drop, a bearish pennant chart pattern has formed. A close below yesterday’s low at 1.0781 would be effectively considered a downside break. Should this happen, we could see EURUSD fall to its April 24 lows at 1.0728.
Alternatively, if buyers still dominate trading, we could see the currency pair trade to near-term resistance at 1.0814. This price coincides with the falling trend line (from connecting the highs of May 1 and May 5). It also aligns with the 23.6% Fib level when you draw from the high of May 5 to the low of May 6. If there is enough bullish momentum, EURUSD could even trade past the trend line and rally to 1.0870 where it could test the 200 SMA.